[6450-01-P]
 

DEPARTMENT OF ENERGY
 

10 CFR Part 430 

[Docket Number EE–2006–BT–STD–0129] 

RIN: 1904–AA90 

Energy Conservation Program: Energy Conservation Standards for Residential Water 

Heaters, Direct Heating Equipment, and Pool Heaters 

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of Energy. 

ACTION: Notice of proposed rulemaking and public meeting. 

SUMMARY: The Energy Policy and Conservation Act (EPCA) prescribes energy conservation 

standards for various consumer products and commercial and industrial equipment, including 

residential water heaters, direct heating equipment (DHE), and pool heaters. EPCA also requires 

the U.S. Department of Energy (DOE) to determine whether more stringent, amended standards 

for these products would be technologically feasible and economically justified, and would save 

a significant amount of energy. In this notice, DOE is proposing amended energy conservation 

standards for residential water heaters (other than tabletop and electric instantaneous models), 

gas-fired DHE, and gas-fired pool heaters. DOE also is announcing a public meeting to receive 

comment on these proposed standards and associated analyses and results. 

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EE-2006-STD-0129 COMMENT 56.1
 

DATES: DOE will hold a public meeting on Thursday, January 7, 2010, from 9:00 a.m. to 4:00 

p.m., in Washington, DC. DOE must receive requests to speak at the public meeting before 4:00 

p.m., Wednesday, December 23, 2009. DOE must receive a signed original and an electronic 

copy of statements to be given at the public meeting before 4:00 p.m., Wednesday, December 30, 

2009. 

DOE will accept comments, data, and information regarding this notice of proposed 

rulemaking (NOPR) before and after the public meeting, but no later than [INSERT DATE 60 

DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. See section 

VII, “Public Participation,” of this NOPR for details. 

ADDRESSES: The public meeting will be held at the U.S. Department of Energy, Forrestal 

Building, Room 1E-245, 1000 Independence Avenue, SW., Washington, DC 20585-0121. To 

attend the public meeting, please notify Ms. Brenda Edwards at (202) 586-2945. Please note that 

foreign nationals visiting DOE Headquarters are subject to advance security screening 

procedures. Any foreign national wishing to participate in the meeting should advise DOE as 

soon as possible by contacting Ms. Brenda Edwards to initiate the necessary procedures. 

Any comments submitted must identify the NOPR for Energy Conservation Standards for 

Heating Products, and provide the docket number EE-2006–BT–STD–0129 and/or regulatory 

information number (RIN) number 1904-AA90. Comments may be submitted using any of the 

following methods: 

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EE-2006-STD-0129 COMMENT 56.1
 

1. Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for 

submitting comments. 

2.	 E-mail: ResWaterDirectPoolHtrs@ee.doe.gov. Include docket number EE-2006-BTSTD-0129 and/or RIN 1904-AA90 in the subject line of the message. 

3.	 Mail: Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, 

Mailstop EE-2J, 1000 Independence Avenue, SW., Washington, DC, 20585-0121. Please 

submit one signed paper original. 

4.	 Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of Energy, Building 

Technologies Program, 950 L’Enfant Plaza, SW., Suite 600, Washington, DC, 20024. 

Telephone: (202) 586-2945. Please submit one signed paper original. 

For detailed instructions on submitting comments and additional information on the 

rulemaking process, see section VII of this document (Public Participation). 

Docket: For access to the docket to read background documents or comments received, 

visit the U.S. Department of Energy, Resource Room of the Building Technologies Program, 950 

L’Enfant Plaza, SW., Suite 600, Washington, DC, (202) 586-2945, between 9:00 a.m. and 4:00 

p.m., Monday through Friday, except Federal holidays. Please call Ms. Brenda Edwards at the 

above telephone number for additional information regarding visiting the Resource Room. 

FOR FURTHER INFORMATION CONTACT: 

Mr. Mohammed Khan, U.S. Department of Energy, Office of Energy Efficiency and 

Renewable Energy, Building Technologies Program, EE-2J, 1000 Independence Avenue, SW., 

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EE-2006-STD-0129 COMMENT 56.1
Washington, DC, 20585-0121. Telephone: (202) 586-7892. E-mail: 

Mohammed.Khan@ee.doe.gov. 

Mr. Eric Stas or Mr. Michael Kido, U.S. Department of Energy, Office of the General 

Counsel, GC-72, 1000 Independence Avenue, SW., Washington, DC, 20585-0121. Telephone: 

(202) 586-9507. E-mail: Eric.Stas@hq.doe.gov or Michael.Kido@hq.doe.gov. 

For information on how to submit or review public comments and on how to participate 

in the public meeting, contact Ms. Brenda Edwards, U.S. Department of Energy, Office of 

Energy Efficiency and Renewable Energy, Building Technologies Program, EE-2J, 1000 

Independence Avenue SW., Washington, DC, 20585-0121. Telephone: (202) 586-2945. E-mail: 

Brenda.Edwards@ee.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of the Proposed Rule 

II. Introduction 

A. Consumer Overview 

B. Authority 

C. Background 

1. Current Standards 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

2. History of Standards Rulemaking for Water Heaters, Direct Heating Equipment, and Pool 

Heaters 

III. General Discussion 

A. Test Procedures 

1. Water Heaters 

2. Direct Heating Equipment 

3. Standby Mode and Off Mode Energy Consumption 

B. Technological Feasibility 

1. General 

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EE-2006-STD-0129 COMMENT 56.1
 

2. Maximum Technologically Feasible Levels 

C. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

D. Economic Justification 

1. Specific Criteria 

a. Economic Impact on Manufacturers and Consumers 

b. Life-Cycle Costs 

c. Energy Savings 

d. Lessening of Utility or Performance of Products 

e. Impact of Any Lessening of Competition 

f. Need of the Nation to Conserve Energy 

g. Other Factors 

2. Rebuttable Presumption 

IV. Methodology and Discussion 

A. Market and Technology Assessment 

1. Consideration of Products for Inclusion in This Rulemaking 

a. Determination of Coverage Under the Act 

b. Covered Products Not Included in This Rulemaking 

2. Definition of Gas Hearth Direct Heating Equipment 

3. Product Classes 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

B. Screening Analysis 

1. Comments on the Screening Analysis 

a. General Comments 

b. Water Heaters 

2. Technologies Considered 

3. Heat Pump Water Heaters Discussion 

a. Consumer Utility 

b. Production, Installation, and Servicing Issues 

c. General Comments 

C. Engineering Analysis 

1. Representative Products for Analysis 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

2. Ultra-Low NOX Gas-Fired Storage Water Heaters 

3. Efficiency Levels Analyzed 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

4. Cost Assessment Methodology 

a. Teardown Analysis 

b. Cost Model 

c. Manufacturing Production Cost 

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EE-2006-STD-0129 COMMENT 56.1
d. Cost-Efficiency Curves 

e. Manufacturer Markup 

f. Shipping Costs 

g. Manufacturer Interviews 

5. Results 

6. Scaling to Additional Rated Storage Capacities for Water Heaters 

7. Energy Efficiency Equations 

D. Markups to Determine Product Price 

E. Life-Cycle Cost and Payback Period Analyses 

1. Product Cost 

2. Installation Cost 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

3. Annual Energy Consumption 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

d. Rebound Effect 

4. Energy Prices 

5. Repair and Maintenance Costs 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

6. Product Lifetime 

7. Discount Rates 

8. Compliance Date of the Amended Standards 

9. Product Energy Efficiency in the Base Case 

a. Water Heaters 

b. DHE 

c. Pool Heaters 

10. Inputs to Payback Period Analysis 

11. Rebuttable-Presumption Payback Period 

F. National Impact Analysis—National Energy Savings and Net Present Value Analysis 

1. Shipments 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

d. Impacts of Standards on Shipments 

2. Other Inputs 

a. Base-Case Forecasted Efficiencies 

b. Standards-Case Forecasted Efficiencies 

c. Annual Energy Consumption 

d. Site-to-Source Energy Conversion 

e. Total Installed Costs and Operating Costs 

f. Discount Rates 

3. Other Inputs 

a. Effects of Standards on Energy Prices 

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EE-2006-STD-0129 COMMENT 56.1
 

G. Consumer Subgroup Analysis 

H. Manufacturer Impact Analysis 

1. Overview 

a. Phase 1: Industry Profile 

b. Phase 2: Industry Cash-Flow Analysis 

c. Phase 3, Subgroup Impact Analysis 

2. GRIM Analysis 

a. GRIM Key Inputs 

b. GRIM Scenarios 

3. Discussion of Comments 

a. Responses to General Comments 

b. Water Heater Comments 

4. Manufacturer Interviews 

a. Storage Water Heater Key Issues 

b. Gas-Fired Instantaneous Water Heater Key Issues 

c. Direct Heating Equipment Key Issues (Gas Wall Fan, Gas Wall Gravity, Gas Floor, 

and Gas Room Direct Heating Equipment) 

d. Direct Heating Equipment Key Issues (Gas Hearth Direct Heating Equipment) 

e. Pool Heater Key Issues 

I. Employment Impact Analysis 

J. Utility Impact Analysis 

K. Environmental Analysis 

1. Impacts of Standards on Emissions 

2. Valuation of CO2 Emissions Reductions 

3. Valuation of Other Emissions Reductions 

V. Analytical Results 

A. Trial Standard Levels 

1. Water Heaters 

2. Direct Heating Equipment 

3. Gas-Fired Pool Heaters 

B. Economic Justification and Energy Savings 

1. Economic Impacts on Consumers 

a. Life-Cycle Cost and Payback Period 

b. Analysis of Consumer Subgroups 

c. Rebuttable Presumption Payback 

2. Economic Impacts on Manufacturers 

a. Water Heater Cash-Flow Analysis Results 

b. Direct Heating Equipment Cash-Flow Analysis Results 

c. Pool Heaters Cash-Flow Analysis Results 

d. Impacts on Employment 

e. Impacts on Manufacturing Capacity 

f. Cumulative Regulatory Burden 

g. Impacts on Small Businesses 

3. National Impact Analysis 

a. Significance of Energy Savings 

b. Net Present Value of Consumer Costs and Benefits 

c. Net Present Value of Benefits from Energy Price Impacts 

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EE-2006-STD-0129 COMMENT 56.1
d. Impacts on Employment 

4. Impact on Utility or Performance of Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation to Conserve Energy 

7. Other Factors 

C. Proposed Standards 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

B. Review Under the Regulatory Flexibility Act 

1. Water Heater Industry 

2. Pool Heater Industry 

3. Direct Heating Equipment Industry Characteristics 

a. Description and Estimated Number of Small Entities Regulated 

b. Reasons for the Proposed Rule 

c. Objectives of, and Legal Basis for, the Proposed Rule 

d. Description and estimate of compliance requirements 

e. Duplication, overlap, and conflict with other rules and regulations 

f. Significant Alternatives to the Proposed Rule 

C. Review Under the Paperwork Reduction Act of 1995 

D. Review Under the National Environmental Policy Act of 1969 

E. Review under Executive Order 13132 

F. Review Under Executive Order 12988 

G. Review Under the Unfunded Mandates Reform Act of 1995 

H. Review Under the Treasury and General Government Appropriations Act, 1999 

I. Review Under Executive Order 12630 

J. Review Under the Treasury and General Government Appropriations Act, 2001 

K. Review Under Executive Order 13211 

L. Review Under the Information Quality Bulletin for Peer Review 

VII. Public Participation 

A. Public Meeting 

B. Procedure for Submitting Requests to Speak 

C. Conduct of Public Meeting 

D. Submission of Comments 

E. Issues on Which DOE Seeks Comment 

VIII. Approval of the Office of the Secretary 

I. Summary of the Proposed Rule 

The Energy Policy and Conservation Act (42 U.S.C. 6291 et seq.; EPCA or the Act), as 

amended, provides that any new or amended energy conservation standard DOE prescribes for 

certain consumer products, including residential water heaters, direct heating equipment (DHE), 

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EE-2006-STD-0129 COMMENT 56.1
 

and pool heaters (collectively referred to in this document as the “three heating products”), shall 

be designed to “achieve the maximum improvement in energy efficiency . . . which the Secretary 

determines is technologically feasible and economically justified.” (42 U.S.C. 6295(o)(2)(A)) 

Furthermore, the new or amended standard must “result in significant conservation of energy.” 

(42 U.S.C. 6295(o)(3)(B)) In accordance with these and other statutory provisions discussed in 

this notice, DOE proposes amended energy conservation standards for the three types of heating 

products listed above. Compliance with the proposed standards would be required for all 

residential water heaters listed in Table I.1 that are manufactured in or imported into the United 

States on or after five years after the date of publication of the final rule. The proposed standards 

would apply to all DHE and pool heaters listed in Table I.1 that are manufactured in or imported 

into the United States on or after three years after the date of publication of the final rule. Table 

I.1 sets forth the proposed standards for the products that are the subject of this rulemaking. 

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EE-2006-STD-0129 COMMENT 56.1
Table I.1 Proposed Amended Energy Conservation Standards for Residential Water 

Heaters, Direct Heating Equipment, and Pool Heaters 

Residential Water Heaters* 

Product Class Proposed Standard Level 

Gas-fired Storage For tanks with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated 

Storage Volume in gallons) 

Electric Storage For tanks with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.96 – (0.0003 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 80 gallons: 

EF = 1.088 – (0.0019 x Rated 

Storage Volume in gallons) 

Oil-fired Storage EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

Gas-fired Instantaneous EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

Direct Heating Equipment** 

Product Class Proposed Standard Level 

Gas wall fan type up to 42,000 Btu/h AFUE = 76% 

Gas wall fan type over 42,000 Btu/h AFUE = 77% 

Gas wall gravity type up to 27,000 Btu/h AFUE = 70% 

Gas wall gravity type over 27,000 Btu/h up to 46, 000 Btu/h AFUE = 71% 

Gas wall gravity type over 46,000 Btu/h AFUE = 72% 

Gas floor up to 37,000 Btu/h AFUE = 57% 

Gas floor over 37,000 Btu/h AFUE = 58% 

Gas room up to 20,000 Btu/h AFUE = 62% 

Gas room over 20,000 Btu/h up to 27,000 Btu/h AFUE = 67% 

Gas room over 27,000 Btu/h up to 46,000 Btu/h AFUE = 68% 

Gas room over 46,000 Btu/h AFUE = 69% 

Gas hearth up to 20,000 Btu/h AFUE = 61% 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h AFUE = 66% 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h AFUE = 67% 

Gas hearth over 46,000 Btu/h AFUE = 68% 

Pool Heaters 

Product Class Proposed Standard Level 

Gas-fired Thermal Efficiency = 84% 

* EF is the “energy factor,” and the “Rated Storage Volume” equals the water storage capacity of a water heater (in
 

gallons), as specified by the manufacturer. 

** Btu/h is “British thermal units per hour” and AFUE is “Annual Fuel Utilization Efficiency.” 

DOE’s analyses indicate that the proposed standards would save a significant amount of 

energy—an estimated 2.85 quads of cumulative energy over a 30-year period. This amount is 

equivalent to 61 days of U.S. gasoline use. Breaking these figures down by product type, the 

national energy savings of the proposed standards is estimated to be 2.60 quads for residential 

water heaters, 0.22 quads for DHE, and 0.03 quads for pool heaters. 

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EE-2006-STD-0129 COMMENT 56.1
The cumulative national net present value (NPV) of total consumer costs and savings 

from the proposed standards (in 2008$) ranges from $5.73 billion (at 7-percent discount rate) to 

$18.1 billion (at 3-percent discount rate). This is the estimated total value of future operatingcost savings minus the estimated increased product and installation costs, discounted to 2010. 

The NPV of the proposed standards for water heaters ranges from $4.79 billion (7­

percent discount rate) to $15.6 billion (3-percent discount rate). DOE estimates the industry net 

present value (INPV) for water heaters to be approximately $1,455 million in 2008$. If DOE 

adopts the proposed standards, it estimates U.S. water heater manufacturers will lose between 0.2 

percent and 5.6 percent of the INPV, which is approximately -$2.4 to -$81.0 million. However, 

the NPV for consumers (at the 7-percent discount rate) is 59 to 1996 times larger than the 

industry losses due to the proposed standards with the 7-percent discount rate, and 193 to 6500 

times larger than the industry losses due to the proposed standards with the 3-percent discount 

rate. 

For DHE, the NPV of the proposed standards ranges from $0.91 billion (7-percent 

discount rate) to $2.22 billion (3-percent discount rate). DOE estimates the INPV for DHE to be 

approximately $104 million in 2008$. If DOE adopts the proposed standards, it estimates U.S. 

DHE manufacturers will lose between 1.9 percent and 5.9 percent of the INPV, which is 

approximately -$2.0 to -$6.2 million. However, the NPV for consumers (at the 7-percent 

discount rate) is 147 to 455 times larger than the industry losses due to the proposed standards 

with the 7-percent discount rate, and 358 to 1,110 times larger than the industry losses due to the 

proposed standards with the 3-percent discount rate. 

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EE-2006-STD-0129 COMMENT 56.1
 

For pool heaters, the NPV of the proposed standard ranges from $0.03 billion (7-percent 

discount rate) to $0.25 billion (3-percent discount rate). DOE estimates the INPV for pool 

heaters to be approximately $61.4 million in 2008$. If DOE adopts the proposed standards, it 

expects the impacts on U.S. pool heater manufacturers will be between a gain of 0.9 percent and 

a loss of 12.1 percent of the INPV, which is approximately -$0.5 million to -$7.5 million. 

However, the NPV for consumers (at the seven-percent discount rate) is 4 to 60 times larger than 

the industry losses due to the proposed standards at the 7-percent discount rate, and 33 to 498 

times larger than the industry losses due to the proposed standards at the 3-percent discount rate. 

The economic impacts of the proposed standards on individual consumers (i.e., the 

average life-cycle cost (LCC) savings) are predominately positive. For water heaters, DOE 

projects that the average LCC impact is a gain of $68 for gas-fired storage water heaters, $39 for 

electric storage water heaters, and $395 for oil-fired storage water heaters, and no change for 

gas-fired instantaneous water heaters. For DHE, DOE projects that the average LCC impact for 

consumers is a gain of $104 for gas wall fan DHE, $192 for gas wall gravity DHE, $13 for gas 

floor DHE, $143 for gas room DHE, and $96 for gas hearth DHE. For pool heaters, DOE 

projects that the average LCC impact for consumers is a loss of $13 (which represents only 0.2 

percent of the average total LCC). 

In addition, the proposed standards would be expected to provide significant 

environmental benefits. The proposed standards would potentially result in cumulative 

greenhouse gas emission reductions of 167 million tons (Mt) of carbon dioxide (CO2) from 2013 

to 2045. Specifically, the proposed standards for water heaters would reduce CO2 emissions by 

154 Mt; the proposed standards for DHE would reduce CO2 emissions by 8.5 Mt; and the 

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EE-2006-STD-0129 COMMENT 56.1
proposed standard for pool heaters would reduce CO2 emissions by 4.2 Mt. For the three types of 

heating products together, DOE estimates that the range of the monetized value of CO2 emission 

reductions based on global estimates of the value of avoided CO2 is $0.399 billion to $4.386 

billion at a 7-percent discount rate and $0.902 billion to $9.925 billion at a 3-percent discount 

rate. 

The proposed standards would also be expected to result in reduction in cumulative 

nitrogen oxides (NOX) emissions of 129 kilotons (kt). Specifically, the proposed water heater 

standards would result in cumulative NOX emissions reductions of 118 kt; the proposed 

standards for DHE would result in 7.7 kt of NOX emissions reductions; and the proposed 

standard for pool heaters would result in 3.7 kt of NOX emissions reductions. 

The proposed standards for heating products would also be expected to result in power 

plant mercury (Hg) emissions reductions. For water heaters, cumulative Hg emissions would be 

reduced by 0.20 tons (t). The proposed standards for DHE and pool heaters would be expected to 

have a negligible impact on mercury emissions. 

The benefits and costs of today’s proposed rule can also be expressed in terms of 

annualized values. The annualized values refer to consumer operating cost savings, consumer 

incremental product and installation costs, the quantity of emissions reductions for CO2, NOx, and 

Hg, and the monetary value of emissions reductions. DOE calculated annualized values using 

discount rates of three percent and seven percent. Although DOE calculated annualized values, 

this does not imply that the time-series of cost and benefits from which the annualized values 

were determined are a steady stream of payments. 

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EE-2006-STD-0129 COMMENT 56.1
Table I.2, Table I.3, and Table I.4 present the annualized values for the standards 

proposed for water heaters, DHE, and pool heaters, respectively. The tables also present the 

annualized net benefit that results from summing the two monetary benefits and subtracting the 

consumer incremental product and installation costs. Although summing the value of operating 

cost savings with the value of CO2 reductions (and other emissions reductions) provides a 

valuable perspective, please note the following. The operating cost savings are domestic U.S. 

consumer monetary savings found in market transactions, but in contrast, the CO2 value is based 

on an estimate of imputed marginal social cost of carbon (SCC), which is meant to reflect the 

global benefits of CO2 reductions. In addition, the assessments of operating cost savings and CO2 

savings are performed with different computer models, leading to different time frames for 

analysis. The operating cost savings are measured for the lifetime of appliances shipped in 2015­

2045 or 2013-2043. The value of CO2, on the other hand is meant to reflect the present value of 

all future climate-related impacts, even those beyond 2065. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

Table I.2 Annualized Benefits and Costs of Proposed Standards for Water Heaters (TSL 4) 

Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO LowGrowth Case) 

High Estimate 

(AEO HighGrowth Case) 

7% 3% 7% 3% 7% 3% 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 1487.1 1842.4 1383.7 1708.4 1590.5 1976.2 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 4.58 4.92 5.34 5.28 0.61 1.04 

NOx 

(kt) 3.54 3.79 4.17 4.11 0.58 0.92 

Hg (t) 0.009 0.008 (0.003) (0.011) 0.010 0.013 

Monetized 

Avoided 

Emissions 

Reductions* 

(Million 2008$) 

CO2 (at 

$20/t) 157.1 187.3 184.8 222.1 20.2 41.9 

NOx 8.2 9.1 9.7 10.9 0.4 1.6 

Hg 0.1 0.1 (0.1) (0.1) 0.1 0.2 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 945.5 917.3 894.4 861.7 997.0 973.4 

Net Benefits 

Monetized 

Value** 

Million 

2008$ 698.8 1112.4 674.1 1068.9 613.7 1044.7 

* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the 

potential global benefits resulting from reduced CO2 emissions. For NOx and Hg, the benefits reflect values of 

$2,491/t and $17 million/t, respectively. These values are the midpoint of the range considered by DOE. 

** Monetized Value does not include monetized avoided emissions reductions for NOx and Hg. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

Table I.3 Annualized Benefits and Costs of Proposed Standards for Direct Heating 

Equipment (TSL 3) 

Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO LowGrowth Case) 

High Estimate 

(AEO HighGrowth Case) 

7% 3% 7% 3% 7% 3% 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 132.2 164.4 126.4 156.9 136.2 169.6 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.24 0.27 0.43 0.46 0.13 0.14 

NOx 

(kt) 0.22 0.24 0.36 0.38 0.14 0.15 

Hg (t) 0.000 (0.001) 0.000 (0.001) 0.000 0.000 

Monetized 

Avoided CO2 

Value (at 

$20/t)* 

Million 

2008$ 8.2 9.8 2.5 2.9 21.0 42.6 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 41.8 40.6 41.8 40.6 41.8 40.6 

Net Benefits 

Monetized 

Value 

Million 

2008$ 98.5 133.5 87.1 119.2 115.4 171.6 

* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the 

potential global benefits resulting from reduced CO2 emissions. For NOx and Hg, the annual benefits are very small 

and are thus not reported in the table. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

 

Table I.4 Annualized Benefits and Costs of Proposed Standards for Pool Heaters (TSL 4) 

Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO LowGrowth Case) 

High Estimate 

(AEO HighGrowth Case) 

7% 3% 7% 3% 7% 3% 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 59.88 68.79 57.29 65.66 61.62 70.86 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.13 0.13 0.16 0.17 0.09 0.10 

NOx 

(kt) 0.112 0.119 0.134 0.143 0.085 0.091 

Hg (t) 0.000 0.000 (0.000) (0.001) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at 

$20/t)* 

Million 

2008$ 4.20 4.84 5.24 6.08 3.01 3.47 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

2008$ 56.66 54.59 56.66 54.59 56.66 54.59 

Net Benefits 

Monetized 

Value 

Million 

2008$ 7.41 19.04 5.88 17.15 7.97 19.74 

* For CO2, benefits reflect value of $20/t, which is in the middle of the values considered by DOE for valuing the 

potential global benefits resulting from reduced CO2 emissions. For NOx and Hg, the annual benefits are very small 

and are thus not reported in the table. 

DOE has tentatively concluded that the proposed standards represent the maximum 

improvement in energy efficiency that is technologically feasible and economically justified, and 

would result in significant conservation of energy. Products achieving these standard levels are 

already commercially available. Based on the analyses culminating in this proposal, DOE found 

the benefits to the Nation of the proposed standards (energy savings, consumer LCC savings, 

national NPV increase, and emission reductions) outweigh the burdens (loss of INPV and LCC 

increases for some consumers). DOE considered higher efficiency levels as trial standard levels, 

and is still considering them in this rulemaking; however, DOE has tentatively concluded that the 

burdens of the higher efficiency levels would outweigh the benefits. With that said, based on 

consideration of public comments DOE receives in response to this notice and related 

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EE-2006-STD-0129 COMMENT 56.1
 

information, DOE may adopt efficiency levels in the final rule that are either higher or lower 

than the proposed standards, or some level(s) in between the proposed standards and other 

efficiency levels presented. 

DOE is proposing TSL 4 for residential water heaters as the level which it has tentatively 

concluded meet the applicable statutory criteria (i.e., the highest level that is technologically 

feasible, economically justified, and would result in significant conservation of energy). Based 

upon public comments and any accompanying data submissions, DOE would strongly consider 

other TSLs (as presented in this NOPR or at some level in between), some of which might 

provide an even higher level of energy savings and promote a market for advanced water heating 

technologies, including heat pump and condensing water heaters. Accordingly, DOE is 

presenting a variety of issues throughout today's notice upon which it is seeking comment which 

will bear upon its consideration of TSL 5 or TSL 6 for residential water heaters in the final rule. 

II. Introduction 

A. Consumer Overview 

EPCA currently prescribes energy conservation standards for the three heating products 

that are the subject of this rulemaking. DOE is proposing to raise the standards for the products 

shown in Table I.1. The proposed standards would apply to residential water heaters 

manufactured or imported on or after five years after the final rule publication date (i.e., 

approximately March 31, 2015). The proposed standards would apply to DHE and pool heaters 

manufactured or imported on or after three years after the final rule publication date (i.e., 

approximately March 31, 2013). 

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EE-2006-STD-0129 COMMENT 56.1
DOE’s analyses suggest that consumers would realize benefits from the proposed 

standards. Although DOE expects that the purchase price of the more-efficient heating products 

would be higher than the average prices of these products today, for most consumers, the energy 

efficiency gains would result in lower energy costs that would more than offset the higher 

purchase price. For water heaters, the median payback period is 2.7 years for gas-fired storage 

water heaters, 5.8 years for electric storage water heaters, 0.5 years for oil-fired storage water 

heaters, and 23.5 years for gas-fired instantaneous water heaters. For DHE, the median payback 

period is 6.0 years for gas wall fan DHE, 8.3 years for gas wall gravity DHE, 14.7 years for gas 

floor DHE, 5.3 years for gas room DHE and 0.0 years for gas hearth DHE. (The reason that the 

median payback period for gas hearth DHE is zero is because for about two-thirds of the 

consumers, there is no incremental cost to get to the proposed standard level). For pool heaters, 

the median payback period is 13.0 years. 

When the overall net savings are summed over the lifetime of these products, water 

heater consumers will save, on average, $68 for gas-fired storage water heaters, $30 for electric 

storage water heaters, $305 for oil-fired storage water heaters, and $0 for gas-fired instantaneous 

water heaters, compared to their life-cycle expenditures on base-case water heaters (i.e., the 

equipment expected to be purchased in the absence of revised energy conservation standards). 

(For gas-fired instantaneous water heaters, the average LCC for the proposed standard level is 

the same as the average LCC in the base case, so the savings are zero.) The average LCC impact 

for DHE consumers is a gain of $104 for gas wall fan DHE, $192 for gas wall gravity DHE, $13 

for gas floor DHE, $143 for gas room DHE, and $96 for gas hearth DHE, compared to their lifecycle expenditures on base-case products. Pool heater consumers will see, on average, a slight 

increase in their life-cycle costs, compared to their expenditures on base-case products. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

B. Authority 

Title III of EPCA sets forth a variety of provisions designed to improve energy 

efficiency. Part A1

 of Title III (42 U.S.C. 6291-6309) establishes the Energy Conservation 

Program for Consumer Products Other Than Automobiles. The program covers consumer 

products and certain commercial equipment (referred to hereafter as "covered products”), 

including the three types of heating products that are subject to this rulemaking. (42 U.S.C. 

6292(a)(4), (9) and (11)) EPCA prescribes energy conservation standards for the three heating 

products. (42 U.S.C. 6295(e)(1)-(3)) The statute further directs DOE to conduct two cycles of 

rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(e)(4)) As 

explained in further detail in section II.C, “Background,” this rulemaking represents the second 

round of amendments to the water heater standards, and the first round of amendments to the 

DHE and pool heater standards. 

Under the Act, DOE’s energy conservation program for covered products consists 

essentially of three parts: (1) testing; (2) labeling; and (3) Federal energy conservation standards. 

The Federal Trade Commission (FTC) is responsible for the labeling provisions for consumer 

products, and DOE implements the remainder of the program. Section 323 of the Act authorizes 

DOE, subject to certain criteria and conditions, to develop test procedures to measure the energy 

efficiency, energy use, or estimated annual operating cost of each covered product. 

Manufacturers of covered products must use the DOE test procedure as the basis for certifying to 

DOE that their products comply with applicable energy conservation standards adopted under 

EPCA and for representing the efficiency of those products. Similarly, DOE must use these test 

1

 This part was originally titled Part B. It was redesignated Part A in the United States Code for editorial reasons. 

20
 

EE-2006-STD-0129 COMMENT 56.1
 

procedures to determine whether the products comply with standards adopted under EPCA. (42 

U.S.C. 6293) The test procedures for water heaters, unvented DHE, vented DHE, and pool 

heaters appear at Title 10 Code of Federal Regulations (CFR) part 430, subpart B, appendices E, 

G, O, and P, respectively. 

EPCA provides criteria for prescribing amended standards for covered products. As 

indicated above, any amended standard for a covered product must be designed to achieve the 

maximum improvement in energy efficiency that is technologically feasible and economically 

justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, EPCA precludes DOE from adopting any 

standard that would not result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) 

Moreover, DOE may not prescribe a standard for certain products (including the three heating 

products) if no test procedure has been established. (42 U.S.C. 6295(o)(3)(A)) The Act also 

provides that, in deciding whether a standard is economically justified, DOE must determine 

whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must 

do so after receiving comments on the proposed standard and by considering, to the greatest 

extent practicable, the following seven factors: 

1.	 The economic impact of the standard on manufacturers and consumers of the products 

subject to the standard; 

2.	 The savings in operating costs throughout the estimated average life of the covered 

products in the type (or class) compared to any increase in the price, initial charges, or 

maintenance expenses for the covered products that are likely to result from the 

imposition of the standard; 

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EE-2006-STD-0129 COMMENT 56.1
 

3. The total projected amount of energy (or, as applicable, water) savings likely to result 

directly from the imposition of the standard; 

4.	 Any lessening of the utility or the performance of the covered products likely to result 

from the imposition of the standard; 

5.	 The impact of any lessening of competition, as determined in writing by the Attorney 

General, that is likely to result from the imposition of the standard; 

6.	 The need for national energy and water conservation; and 

7. Other factors the Secretary considers relevant. 

(42 U.S.C. 6295(o)(2)(B)(i)(I)–(VII)) 

Furthermore, EPCA contains what is commonly known as an “anti-backsliding” 

provision, which prohibits the Secretary from prescribing any amended standard that either 

increases the maximum allowable energy use or decreases the minimum required energy 

efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe a 

new or amended standard if interested persons have established by a preponderance of the 

evidence that the standard is likely to result in the unavailability in the United States of any 

covered product type (or class) with performance characteristics (including reliability), features, 

sizes, capacities, and volumes that are substantially the same as those generally available in the 

United States. (42 U.S.C. 6295(o)(4)) 

Under 42 U.S.C. 6295(o)(2)(B)(iii), EPCA establishes a rebuttable presumption that a 

standard is economically justified if the Secretary finds that “the additional cost to the consumer 

of purchasing a product complying with an energy conservation standard level will be less than 

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EE-2006-STD-0129 COMMENT 56.1
three times the value of the energy. . . savings during the first year that the consumer will receive 

as a result of the standard, as calculated under the applicable test procedure. . . .” 

Under 42 U.S.C. 6295(q)(1), EPCA specifies requirements for promulgation of a 

standard for a type or class of covered product that has two or more subcategories. DOE must 

specify a different standard level than that which applies generally to such type or class of 

products “for any group of covered products which have the same function or intended use, if . . . 

products within such group – (A) consume a different kind of energy from that consumed by 

other covered products within such type (or class); or (B) have a capacity or other performancerelated feature which other products within such type (or class) do not have and such feature 

justifies a higher or lower standard” than applies or will apply to the other products. (42 U.S.C. 

6295(q)(1)) In determining whether a performance-related feature justifies a different standard 

for a group of products, DOE must “consider such factors as the utility to the consumer of such a 

feature” and other factors DOE deems appropriate. Id. Any rule prescribing such a standard must 

include an explanation of the basis on which such higher or lower level was established. (42 

U.S.C. 6295(q)(2)) 

Federal energy conservation requirements generally supersede State laws or regulations 

concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)–(c)) 

However, DOE can grant waivers of Federal preemption for particular State laws or regulations 

in accordance with the procedures and other provisions of section 327(d) of the Act. (42 U.S.C. 

6297(d)) 

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EE-2006-STD-0129 COMMENT 56.1
Finally, section 310(3) of the Energy Independence and Security Act of 2007 (EISA 

2007; Pub. L. 110-140) amended EPCA to prospectively require that energy conservation 

standards address standby mode and off mode energy use. Specifically, when DOE adopts new 

or amended standards for a covered product after July 1, 2010, the final rule must, if justified by 

the criteria for adoption of standards in section 325(o) of EPCA, incorporate standby mode and 

off mode energy use into a single standard if feasible, or otherwise adopt a separate standard for 

such energy use for that product. (42 U.S.C. 6295(gg)(3)) Because the final rule in this 

rulemaking is scheduled for adoption by March 2010, this requirement does not apply in this 

rulemaking, and DOE has not attempted to address the standby mode or off mode energy use 

here. DOE is currently working on a test procedure rulemaking to address standby mode and off 

mode energy consumption for the three types of heating products that are the subject of this 

rulemaking. 

C. Background 

1. Current Standards 

a. Water Heaters 

On January 17, 2001, DOE prescribed the current energy conservation standards for 

residential water heaters manufactured on or after January 20, 2004. 66 FR 4474. This final rule 

completed the first amended standards rulemaking for water heaters required under 42 U.S.C. 

6295(e)(4)(A). The standards consist of minimum energy factors (EF) that vary based on the 

storage volume of the water heater, the type of energy it uses (i.e., gas, oil, or electricity), and 

whether it is a storage, instantaneous, or tabletop model. 10 CFR 430.32(d). The water heater 

energy conservation standards are set forth in Table II.1 below. 

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EE-2006-STD-0129 COMMENT 56.1
 

Table II.1 Current Federal Energy Conservation Standards for Residential Water Heaters 

Product Class Energy Factor as of January 20, 2004 

1. Gas-Fired Storage Water Heater EF = 0.67 - (0.0019 x Rated Storage Volume in gallons) 

2. Oil-Fired Storage Water Heater EF = 0.59 - (0.0019 x Rated Storage Volume in gallons) 

3. Electric Storage Water Heater EF = 0.97 - (0.00132 x Rated Storage Volume in gallons) 

4. Tabletop Water Heater EF = 0.93 - (0.00132 x Rated Storage Volume in gallons) 

5. Gas-Fired Instantaneous Water Heater EF = 0.62 - (0.0019 x Rated Storage Volume in gallons) 

6. Instantaneous Electric Water Heater EF = 0.93 - (0.00132 x Rated Storage Volume in gallons) 

b. Direct Heating Equipment 

EPCA prescribes the energy conservation standards for DHE, which apply to gas-fired 

products manufactured on or after January 1, 1990. (42 U.S.C. 6295(e)(3)) These standards 

consist of several minimum annual fuel utilization efficiency (AFUE) levels, each of which 

applies to units of a particular type (i.e., wall fan, wall gravity, floor, room) and heating capacity 

range. Id. These statutory standards have been codified in DOE’s regulations at 10 CFR 

430.32(i). The DHE energy conservation standards are set forth in Table II.2 below. DOE notes 

that while electric DHE are available, standards for these products are outside the scope of 

today’s rulemaking. See IV.A.1.b for a more detailed discussion of DHE coverage under EPCA. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

Table II.2 Current Federal Energy Conservation Standards for Direct Heating Equipment 

Direct Heating 

Equipment Design 

Type 

Product Class 

Btu/h 

Annual Fuel 

Utilization Efficiency, 

as of Jan. 1, 1990 

% 

Gas Wall Fan Up to 42,000 73 

Over 42,000 74 

Gas Wall Gravity 

Up to 10,000 59 

Over 10,000 and up to 12,000 60 

Over 12,000 and up to 15,000 61 

Over 15,000 and up to 19,000 62 

Over 19,000 and up to 27,000 63 

Over 27,000 and up to 46,000 64 

Over 46,000 65 

Gas Floor Up to 37,000 56 

Over 37,000 57 

Gas Room 

Up to 18,000 57 

Over 18,000 and up to 20,000 58 

Over 20,000 and up to 27,000 63 

Over 27,000 and up to 46,000 64 

Over 46,000 65 

c. Pool Heaters 

EPCA requires pool heaters manufactured on or after January 1, 1990 to have a thermal 

efficiency no less than 78 percent. The thermal efficiency for this product is measured by testing 

in accordance with the DOE test procedure for pool heaters codified in 10 CFR 430, subpart B, 

Appendix P. The statutory standard for pool heaters has been codified in DOE’s regulations at 10 

CFR 430.32(k). 

2. History of Standards Rulemaking for Water Heaters, Direct Heating Equipment, and Pool 

Heaters 

Before being amended by the National Appliance Energy Conservation Act of 1987 

(NAECA; Pub. L. 100-12), Title III of EPCA included water heaters and home heating 

equipment as covered products. NAECA’s amendments to EPCA included replacing the term 

“home heating equipment” with “direct heating equipment,” adding pool heaters as a covered 

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EE-2006-STD-0129 COMMENT 56.1
product, establishing energy conservation standards for these two products as well as residential 

water heaters, and requiring that DOE determine whether these standards should be amended. 

(42 U.S.C. 6295(e)(1)-(4)) As indicated above, DOE amended the statutorily-prescribed 

standards for water heaters in 2001 (66 FR 4474 (Jan. 17, 2001)), but has not amended the 

statutory standards for DHE or pool heaters. 

DOE initiated this rulemaking on September 27, 2006, by publishing on its website its 

“Rulemaking Framework for Residential Water Heaters, Direct Heating Equipment, and Pool 

Heaters.” (A PDF of the framework document is available at 

www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment 

framework_092706.pdf.) DOE also published a notice announcing the availability of the 

framework document and a public meeting and requesting comments on the matters raised in the 

document. 71 FR 67825 (Nov. 24, 2006). The framework document described the procedural and 

analytical approaches that DOE anticipated using to evaluate potential energy conservation 

standards for the three heating products and identified various issues to be resolved in conducting 

the rulemaking. 

DOE held the public meeting on January 16, 2007, where it: presented the contents of the 

framework document; described the analyses it planned to conduct during the rulemaking; 

sought comments from interested parties on these subjects; and in general, sought to inform 

interested parties about, and facilitate their involvement in, the rulemaking. Interested parties that 

participated in the public meeting discussed the following issues: the scope of coverage for the 

rulemaking; product classes; efficiency levels analyzed in the engineering analysis; installation, 

repair, and maintenance costs; and product and fuel switching. At the meeting and during the 

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EE-2006-STD-0129 COMMENT 56.1
public comment period, DOE received many comments that helped DOE identify and resolve the 

issues involved in this rulemaking to consider amended energy conservation standards for the 

three types of heating products. 

DOE then gathered additional information and performed preliminary analyses to help 

develop the potential energy conservation standards for the three heating products. This process 

culminated in DOE’s announcement of another public meeting to discuss and receive comments 

on the following matters: the product classes DOE planned to analyze; the analytical framework, 

models, and tools that DOE has been using to evaluate standards; the results of the preliminary 

analyses DOE performed; and potential standard levels that DOE could consider. 74 FR 1643 

(Jan. 13, 2009) (the January 2009 notice). DOE also invited written comments on these subjects 

and announced the availability of a preliminary technical support document (preliminary TSD) to 

inform interested parties and enable them to provide comments. Id. (The preliminary TSD is 

available at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_preli 

m_tsd.html.) DOE stated its interest in receiving comments on other relevant issues that 

participants believe DOE should address in this NOPR, which would affect energy conservation 

standards for the three heating products. Id. at 1646. 

The preliminary TSD provided an overview of the activities DOE undertook in 

developing potential standard levels for the three heating products and discussed the comments 

DOE received in response to the framework document. It also described the analytical 

framework that DOE used (and continues to use in this rulemaking), including a description of 

the methodology, the analytical tools, and the relationships among the various analyses that are 

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EE-2006-STD-0129 COMMENT 56.1
part of the rulemaking. The preliminary TSD described in detail each analysis DOE performed 

up to that point, including inputs, sources, methodologies, and results. DOE examined each of 

the three heating products in each of the following analyses: 

• A market and technology assessment addressed the scope of this rulemaking (i.e., which 

types of heating products this rulemaking covers), identified the potential classes for each 

product, characterized the markets for these products, and reviewed techniques and approaches 

for improving product efficiency. 

• A screening analysis reviewed technology options to improve the efficiency of each of 

the three heating products and weighed these options against DOE’s four prescribed screening 

criteria (i.e., technological feasibility; practicability to manufacture, install, and service; adverse 

impacts on product utility or product availability; and adverse impacts on health or safety). 

• An engineering analysis estimated the manufacturer selling prices (MSPs) associated 

with more efficient water heaters, DHE, and pool heaters. 

• An energy use analysis estimated the annual energy use in the field of each of the three 

heating products. 

• A markups analysis developed factors to convert estimated MSPs derived from the 

engineering analysis to consumer prices. 

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EE-2006-STD-0129 COMMENT 56.1
• A life-cycle cost analysis calculated, at the consumer level, the discounted savings in 

operating costs throughout the estimated average life of the product compared to any increase in 

installed costs likely to result directly from a given standard. 

• A payback period (PBP) analysis estimated the amount of time it takes consumers to 

recover the higher purchase expense of more energy efficient products through lower operating 

costs. 

• A shipments analysis estimated shipments of each of the three heating products over the 

time period examined in the analysis (i.e., 2015-2045 for water heaters and 2013-2043 for DHE 

and pool heaters) under both a base-case scenario (i.e., assuming no new standards) and a 

standards-case scenario (i.e., assuming new standards at the various levels under consideration). 

The shipments analysis provides key inputs to the national impact analysis (NIA). 

• A national impact analysis assessed the aggregate impacts at the national level of 

potential energy conservation standards for each of the three heating products, as measured by 

the net present value of total consumer economic impacts and national energy savings. 

• A preliminary manufacturer impact analysis took the initial steps in evaluating the 

effects on manufacturers of potential new efficiency standards. 

In the January 2009 notice, DOE summarized in detail the nature and function of the 

following analyses: (1) engineering, (2) energy use characterization, (3) markups to determine 

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EE-2006-STD-0129 COMMENT 56.1
 

installed prices, (4) LCC and PBP analyses, and (5) national impact analysis. 74 FR 1643, 1645­

46 (Jan. 13, 2009). 

The public meeting announced in the January 2009 notice took place on February 9, 

2009. At this meeting, DOE presented the methodologies and results of the analyses set forth in 

the preliminary TSD. The major topics discussed at the February 2009 public meeting included 

the product classes for the rulemaking, the treatment of ultra-low NOX water heaters, heat pump 

water heaters screening considerations, installation costs and concerns for heat pump water 

heaters, the manufacturing costs for max-tech products, pool heater shipments, the energy-use 

adjustment for gas-fired instantaneous water heaters, and the compliance dates for amended 

standards. The comments received since publication of the January 2009 notice, including those 

received at the February 2009 public meeting, have contributed to DOE’s proposed resolution of 

the issues in this rulemaking. This NOPR quotes and summarizes many of these comments, and 

responds to the issues they raised. (A parenthetical reference at the end of a quotation or 

paraphrase provides the location of the relevant source in the public record.) 

III. General Discussion 

A. Test Procedures 

As noted above, DOE’s current test procedures for water heaters, vented DHE, and pool 

heaters appear at Title 10 Code of Federal Regulations (CFR) part 430, subpart B, appendices E, 

O, and P, respectively. DOE uses these test procedures to determine whether the products 

comply with standards adopted under EPCA. (42 U.S.C. 6293) 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

1. Water Heaters 

During the preliminary analysis, DOE received a number of comments on the test 

procedure for residential water heaters. Edison Electric Institute (EEI) stated that DOE should 

modify the values for hot water use and the number of daily draws in the water heater test 

procedure to more closely resemble field conditions (i.e., include more shorter draws, rather than 

fewer longer draws), and SEISCO INTERNATIONAL (SEISCO) recommended the adoption of 

a testing protocol for water heaters that can best simulate real world usage patterns. (EEI, No. 40 

at p.5; SEISCO, No. 41 at p. 3)2 Southern Company (Southern), Bock Water Heaters (Bock), and 

EEI all stated that DOE needs to revise the test procedure to account for the actual performance 

of gas-fired instantaneous water heaters. (Southern, No. 50 at p. 2; Bock, No. 53 at p. 3; EEI, No. 

40 at p. 5) 

DOE acknowledges that the actual hot water use and the number of daily draws seen in 

the field can vary greatly depending upon occupancy and consumer usage patterns for each type 

of water heater. DOE’s test procedure attempts to normalize the usage across fuel types by 

specifying a typical draw pattern and total hot water usage. DOE accounts for the variability of 

these parameters on the energy consumption of the water heater using: (1) a hot water draw 

model that accounts for field conditions in a representative sample of U.S. homes; and (2) data 

from field studies of gas-fired instantaneous water heaters that incorporate a distribution of 

correction factors to account for actual field operation. These adjustments are used to estimate 

the impacts on consumers of amended standards in the LCC and PBP analysis. 

2

 “EEI, No. 40 at p. 5” refers to: (1) to a statement that was submitted by the Edison Electric Institute. It was 

recorded in the Resource Room of the Building Technologies Program in the docket under “Energy Conservation 

Program: Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool 

Heaters,” Docket Number EERE-2006–BT–STD–0129, as comment number 40; and (2) a passage that appears on 

page 5 of that statement. 

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EE-2006-STD-0129 COMMENT 56.1
In the past, the issue of whether the efficiency levels examined by DOE in this NOPR are 

achievable using the current DOE test procedures for residential water heaters has received much 

attention from commenters. In particular, several manufacturers either through manufacturer 

interviews or docket submissions have expressed their concern that as efficiencies increase and 

approach the theoretical maximum efficiency for electric resistance water heating (i.e., 1.0 EF), 

the ability to consistently and repeatedly achieve those efficiencies is significantly hindered by 

the variations and inaccuracies that are inherent in the current DOE test procedure. During 

engineering and manufacturer interviews, manufacturers have indicated that this becomes an 

increasingly important issue at 0.95 EF. 

Rheem Manufacturing Company (Rheem) commented that the nature of the DOE test 

procedure, including test set-up variations, instrumentation, and measurement inaccuracies, 

limits the attainable energy factor values. Rheem stated that DOE should reevaluate the current 

test procedure to determine whether it can accurately measure the EF levels being proposed for 

standards, especially if a standard is set at or near the theoretically maximum-attainable EF. 

(Rheem, No. 49 at pp. 3-4) 

DOE agrees with Rheem’s assertion that as the theoretical limit is reached for a covered 

product utilizing a given technology (e.g., electric resistance storage water heaters), the 

limitations imposed by the instrumentation, test set-up, and measurement accuracies become 

increasingly important. In response, DOE notes that there are currently several models in 

AHRI’s Directory of certified residential water heaters that are listed with energy factors of 0.95 

EF over a range of storage volumes. DOE believes this fact demonstrates that it is possible for 

manufacturers to make products that can repeatedly achieve an energy factor of 0.95 and can be 

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EE-2006-STD-0129 COMMENT 56.1
 

certified at this efficiency level. In order to further verify the ability of manufacturers to achieve 

this efficiency level, DOE performed its own research, which consisted of independent thirdparty testing of several water heater models rated at 0.95 EF with rated storage volumes 

spanning 30 to 80 gallons. Of the five models tested that were rated at 0.95 EF, four fell within 

the acceptable range of values to be rated and certified at 0.95 EF, while only one model failed 

to achieve an efficiency that would be acceptable for a 0.95 EF rating. This further demonstrates 

the ability of manufacturers to consistently achieve 0.95 EF, as the large majority of the sample 

of models tested did reach an acceptable value for certification at 0.95 EF. 

DOE has tentatively concluded that the TSLs being considering in the proposed rule 

provide ample room for manufacturers to innovatively design products which meet the 

standards using the existing test procedure. DOE’s test results further provide evidence that 

electric storage water heaters exist at TSL 4 (0.95 EF at the representative rated storage 

capacity) across a range of storage volumes in the market today. In addition, DOE notes that 

once the product surpasses the theoretical maximum of a given technology by utilizing a 

different design these problems are mitigated. Consequently, DOE does not believe 

commenter’s concerns regarding the repeatability and accuracy of the test procedure apply to 

TSL 6 and 7, where DOE is considering advance technology water heaters, including heat pump 

water heaters. 

The Natural Resources Defense Council (NRDC) stated that the water heater test 

procedure fails to capture all of the cost-effective efficiency measures; the American Council for 

an Energy-Efficient Economy (ACEEE) and NRDC both stated that due to test procedure flaws 

(e.g., giving no efficiency advantage for an insulated tank bottom), manufacturers are generally 

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EE-2006-STD-0129 COMMENT 56.1
 

not willing to incorporate enhanced efficiency features because product costs are likely to rise 

without improving the rated energy efficiency. (NRDC, No. 48 at p. 3; ACEEE, No. 35 at p. 4) 

DOE acknowledges that the current test procedure may not reflect recent advances in 

technology. DOE believes, however, that the test procedure provides satisfactory methods for 

measuring performance of the efficiency levels considered in this rulemaking. Furthermore, the 

design paths that can be used to achieve the considered efficiency levels are given appropriate 

credit by the test procedure. DOE believes that the appropriate time to address the concerns 

raised is during the next revision of DOE’s test procedure. 

2. Direct Heating Equipment 

The energy conservation standards set by EPCA for DHE are consistent with the energy 

efficiency metric described in the vented home heating equipment test procedure. On May 12, 

1997, DOE published a final test procedure rule (the May 1997 final rule) in the Federal 

Register that amended the test procedures for DHE, particularly for vented home heating 

equipment. 62 FR 26140. In this rulemaking, DOE proposes that this test procedure be applied to 

establish the efficiency of vented gas hearth DHE. 

3. Standby Mode and Off Mode Energy Consumption 

EPCA, as amended by EISA 2007 requires DOE to amend the test procedures for the 

three types of heating products to include the standby mode and off mode energy consumption 

measurements. (42 U.S.C. 6295(gg)(2)(B)(v)) Consistent with EISA 2007's statutory deadline 

for these changes, DOE intends to amend its test procedures to incorporate these measurements 

by March 31, 2010. DOE is handling standby mode and off mode energy use for the three 

heating products in a separate rulemaking. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

B. Technological Feasibility 

1. General 

In each energy conservation standards rulemaking, DOE conducts a screening analysis, 

which it bases on information it has gathered on all current technology options and prototype 

designs that could improve the efficiency of the products or equipment that are the subject of the 

rulemaking. As the first step in such analysis, DOE develops a list of design options for 

consideration in consultation with manufacturers, design engineers, and other interested parties. 

DOE then determines which of these means for improving efficiency are technologically 

feasible. DOE considers a design option to be technologically feasible if it is in use by the 

relevant industry or if research has progressed to the development of a working prototype. 

“Technologies incorporated in commercial products or in working prototypes will be considered 

technologically feasible.” 10 CFR 430, subpart C, appendix A, section 4(a)(4)(i). 

Once DOE has determined that particular design options are technologically feasible, it 

evaluates each design option in light of the following additional screening criteria: (1) 

practicability to manufacture, install, or service; (2) adverse impacts on product utility or 

availability; and (3) adverse impacts on health or safety. Section IV.B of this notice discusses the 

results of the screening analysis for the three types of heating products, particularly the designs 

DOE considered, those it screened out, and those that are the basis for the efficiency levels in 

this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of 

the NOPR TSD. 

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2. Maximum Technologically Feasible Levels 

When DOE proposes to adopt (or not adopt) an amended or new energy conservation 

standard for a type or class of covered product, it must “determine the maximum improvement in 

energy efficiency or maximum reduction in energy use that is technologically feasible” for such 

product. (42 U.S.C. 6295(p)(1)) Accordingly, DOE determined the maximum technologically 

feasible (“max-tech”) efficiency levels for the three heating products in the engineering analysis 

using the most efficient design parameters that lead to the creation of the highest product 

efficiencies possible. (See chapter 5 of the NOPR TSD.) 

The max-tech efficiency levels are set forth in TSL 7 for residential water heaters, TSL 6 

for DHE, and TSL 6 for pool heaters. For the representative rated storage volumes and input 

capacity ratings within a given product class, products with these efficiency levels were or are 

now being offered for sale, or there is a prototype that has been tested and developed. No 

products at higher efficiency levels are currently available. Table III.1 lists the max-tech 

efficiency levels that DOE determined for this rulemaking. 

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EE-2006-STD-0129 COMMENT 56.1
Table III.1 Max-Tech Efficiency Levels for the Residential Heating Products Rulemaking 

Product Class Representative Product Max-Tech Efficiency Level 

Residential Water Heaters 

Gas-Fired Storage Water 

Heater 

Rated Storage Volume = 40 

Gallons 

EF = 0.80 

Electric Storage Water Heater Rated Storage Volume = 50 

Gallons 

EF = 2.2 

Oil-Fired Storage Water 

Heater 

Rated Storage Volume = 32 

Gallons 

EF = 0.68 

Gas-Fired Instantaneous 

Water Heater 

Rated Storage Volume = 0 

Gallons, Rated Input Capacity 

= 199,999 Btu/h 

EF = 0.95 

Direct Heating Equipment 

Gas Wall Fan Type Rated Input Capacity = Over 

42,000 Btu/h 

AFUE = 80% 

Gas Wall Gravity Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 72% 

Gas Floor Type Rated Input Capacity = Over 

37,000 Btu/h 

AFUE = 58% 

Gas Room Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 83% 

Gas Hearth Type Rated Input Capacity = Over 

27,000 Btu/h and up to 46,000 

Btu/h 

AFUE = 93% 

Pool Heaters 

Gas Fired Rated Input Capacity = 

250,000 Btu/h 

Thermal Efficiency = 95% 

See section IV.C.3 for additional details of the max-tech efficiency levels and discussion 

of related comments from interested parties on the preliminary analysis. In this NOPR, DOE 

again seeks public comment on the max-tech efficiency levels identified for its analyses. 

Specifically, DOE requests information about whether the efficiency levels identified by DOE 

would be achievable using the technologies screened-in during the screening analysis (see 

section IV.B), especially for gas-fired storage water heaters, and whether even higher 

efficiencies would be achievable using screened-in technologies. (See Issue 1 under “Issues on 

Which DOE Seeks Comment” in section VII.E of this NOPR.) 

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EE-2006-STD-0129 COMMENT 56.1
 

C. Energy Savings 

1. Determination of Savings 

DOE used its NIA spreadsheet to estimate energy savings expected to result from 

amended energy conservation standards for products that would be covered under today’s 

proposed rule. (Section IV.F of this notice and chapter 10 of the NOPR TSD describe the NIA 

spreadsheet model.) For each TSL, DOE forecasted energy savings over the period of analysis 

(beginning in 2013 (DHE, pool heaters) or 2015 (water heaters), the year that compliance with 

the amended standards would be required, and ending 30 years later) relative to the base case. 

(The base case represents the forecast of energy consumption in the absence of amended energy 

conservation standards.) Stated another way, DOE quantified the energy savings attributable to 

potential amended energy conservation standards as the difference in energy consumption 

between the standards case and the base case. 

The NIA spreadsheet model calculates the energy savings in site energy, which is the 

energy directly consumed on location by an individual product. DOE reports national energy 

savings on an annual basis in terms of the aggregated source (primary) energy savings, which are 

the energy savings used to generate and transmit the energy consumed at the site. To convert site 

energy to source energy, DOE derived conversion factors, which change with time, from the 

Energy Information Agency’s (EIA) Annual Energy Outlook 2009 (AEO2009). 

For results of DOE’s National Energy Savings (NES) analysis, see section V.B.3 of this 

notice or chapter 10 of the NOPR TSD. 

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EE-2006-STD-0129 COMMENT 56.1
2. Significance of Savings 

As noted above, under 42 U.S.C. 6295(o)(3)(B), DOE is prohibited from adopting a 

standard for a covered product if such standard would not result in “significant” energy savings. 

While the term “significant” is not defined in the Act, the U.S. Court of Appeals for the District 

of Columbia Circuit, in Natural Resources Defense Council v. Herrington, 768 F.2d 1355, 1373 

(D.C. Cir. 1985), indicated that Congress intended “significant” energy savings in this context to 

be savings that were not “genuinely trivial.” The energy savings for all of the TSLs considered in 

this rulemaking are nontrivial, and, therefore, DOE considers them “significant” within the 

meaning of section 325 of the EPCA. 

D. Economic Justification 

1. Specific Criteria 

As noted in section II.B., EPCA provides seven factors to be evaluated in determining 

whether a potential energy conservation standard is economically justified. (42 U.S.C. 

6295(o)(2)(B)(i)) The following sections discuss how DOE has addressed each of those seven 

factors in this rulemaking. 

a. Economic Impact on Manufacturers and Consumers 

EPCA requires DOE to consider the economic impact on manufacturers and consumers 

of products when determining the economic justification of a standard. (42 U.S.C. 

6295(o)(2)(B)(i)(I)) In determining the impacts of an amended standard on manufacturers, DOE 

first determines the quantitative impacts using an annual cash-flow approach. This includes both 

a short-term assessment—based on the cost and capital requirements during the period between 

the announcement of a regulation and when the regulation comes into effect—and a long-term 

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EE-2006-STD-0129 COMMENT 56.1
 

 

assessment over the 30-year analysis period. The impacts analyzed include INPV (which values 

the industry on the basis of expected future cash flows), annual cash flows, changes in revenue 

and income, and other measures of impact, as appropriate. DOE analyzes and reports the impacts 

on different types of manufacturers, paying particular attention to impacts on small 

manufacturers. DOE also considers the impact of standards on domestic manufacturer 

employment and manufacturing capacity, as well as the potential for plant closures and loss of 

capital investment. Finally, DOE accounts for cumulative impacts of different DOE regulations 

and other regulatory requirements on manufacturers. 

For consumers, measures of economic impact include the changes in LCC and PBP for 

each TSL. The LCC, which is also separately specified as one of the seven factors to be 

considered in determining the economic justification for a new or amended standard (42 U.S.C. 

6295(o)(2)(B)(i)(II)), is discussed in the following section. 

For the results of DOE’s analysis of the economic impacts of potential standards on 

manufacturers and consumers, see section V.B of this notice and chapters 8 and 12 of the NOPR 

TSD. 

b. Life-Cycle Costs 

The LCC is the sum of the purchase price of a product (including associated installation 

costs) and the operating expense (including energy, maintenance, and repair expenditures) 

discounted over the lifetime of the product. In this rulemaking, DOE calculated both LCC and 

LCC savings for various efficiency levels for each product. The LCC analysis estimated the LCC 

for representative heating products in housing units that represent the segment of the U.S. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

housing stock that uses these appliances. Through the use of a housing stock sample, DOE 

determined for each household in the sample the energy consumption of the heating product and 

the appropriate energy prices. By using a representative sample of households, the analysis 

captured the wide variability in energy consumption and energy prices associated with heating 

product use. For each household, DOE sampled the values of several inputs to the LCC 

calculation from probability distributions. For purposes of the analysis, DOE assumes that the 

consumer purchases the product in the year the standard becomes effective. 

DOE presents the LCC savings as a distribution, with a mean value and a range across 

the sample for each product. This approach permits DOE to identify the percentage of consumers 

achieving LCC savings or attaining certain payback values due to an amended energy 

conservation standard, in addition to the average LCC savings or average payback for that 

standard. 

For the results of DOE’s LCC and PBP analyses, see section V.B.1.a of this notice and 

chapter 8 of the NOPR TSD. 

c. Energy Savings 

While significant conservation of energy is a separate statutory requirement for adopting 

an energy conservation standard, the Act requires DOE, in determining the economic 

justification of a standard, to consider the total projected energy savings that are expected to 

result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) DOE used the NES 

spreadsheet results in its consideration of total projected savings. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

For the results of DOE’s energy savings analyses, see section V.B.3.a of this notice and 

chapter 10 of the NOPR TSD. 

d. Lessening of Utility or Performance of Products 

In establishing product classes and evaluating their potential for improved energy 

efficiency, DOE sought to develop potential standards for the three types of heating products that 

would not lessen the utility or performance of these products. During the screening analysis, 

DOE tentatively concluded that the efficiency levels being considered would not necessitate 

changes in product design that would reduce utility or performance of the three types of heating 

products that are the subject of this rulemaking. Therefore, none of the TSLs presented in today’s 

NOPR would reduce the utility or performance of the products under consideration. (42 U.S.C. 

6295(o)(2)(B)(i)(IV)) 

For the results of DOE’s analyses related to the impact of potential standards on product 

utility and performance, see section IV.B of this notice and chapter 4 of the NOPR TSD, the 

screening analysis. 

e. Impact of Any Lessening of Competition 

EPCA directs DOE to consider any lessening of competition likely to result from 

standards. It directs the Attorney General to determine the impact, if any, of any lessening of 

competition likely to result from a proposed standard and to transmit such determination to the 

Secretary, not later than 60 days after the publication of a proposed rule, together with an 

analysis of the nature and extent of such impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (B)(ii)) 

DOE has transmitted a copy of today’s proposed rule to the Attorney General and has requested 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

that the U.S. Department of Justice (DOJ) provide its determination on this issue. DOE will 

publish and address the Attorney General’s determination in the final rule. 

f. Need of the Nation to Conserve Energy 

EPCA directs DOE to consider the need for national energy and water conservation as 

part of its standard-setting process. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) DOE has preliminarily 

determined that the non-monetary benefits of the proposed standards would likely be reflected in 

improvements to the security and reliability of the Nation’s energy system. Reductions in the 

demand for electricity may result in reduced costs for maintaining reliability of the Nation’s 

electricity system. DOE conducts a utility impact analysis to estimate how standards may affect 

the Nation’s power generation capacity requirements. 

Energy savings from the proposed standards would also be likely to result in 

environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases 

associated with energy production, and through reduced use of fossil fuels at the homes where 

heating products are used. Although presented in summary form in section IV.K, DOE reports 

the environmental effects from the proposed standards and all of the considered TSLs in the 

environmental assessment contained in chapter 15 of the NOPR TSD. DOE also reports 

estimates of the economic value of emissions reductions resulting from the considered TSLs. 

g. Other Factors 

The Act allows the Secretary of Energy, in determining whether a standard is 

economically justified, to consider any other factors that the Secretary deems to be relevant. (42 

U.S.C. 6295(o)(2)(B)(i)(VII)) Under this provision, DOE considered LCC impacts on 

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EE-2006-STD-0129 COMMENT 56.1
identifiable groups of consumers, such as seniors and residents of multi-family housing, who 

may be disproportionately affected by any national energy conservation standard level. In 

addition, DOE considered the uncertainties associated with the heat pump water heater market 

related to the ability of manufacturers to ramp up production of heat pump water heaters to serve 

the U.S. market, the ability of heat pump component manufacturers to increase production to 

serve the water heater market, and the ability to retrain enough servicers and installers of water 

heaters to serve the market. See section V.C.1 for an additional discussion of the uncertainties in 

the heat pump water heater market. 

For the results of DOE’s LCC subgroup analysis, see section IV.G of this notice and 

chapter 11 of the NOPR TSD. For a full discussion of the uncertainties related to heat pump 

water heaters, see sections V.C.1 and IV.B.3 of this notice. 

2. Rebuttable Presumption 

As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA provides for a rebuttable presumption 

that an energy conservation standard is economically justified if the additional cost to the 

consumer of a product that meets the standard level is less than three times the value of the firstyear energy (and, as applicable, water) savings resulting from the standard, as calculated under 

the applicable DOE test procedure. The LCC and PBP analyses generate values that calculate the 

payback period for consumers of potential amended energy conservation standards. These 

analyses include, but are not limited to, the 3-year payback period contemplated under the 

rebuttable presumption test discussed above. However, DOE routinely conducts a full economic 

analysis that considers the full range of impacts, including those to the consumer, manufacturer, 

Nation, and environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this 

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EE-2006-STD-0129 COMMENT 56.1
 

analysis serve as the basis for DOE to definitively evaluate the economic justification for a 

potential standard level (thereby supporting or rebutting the results of any preliminary 

determination of economic justification). The rebuttable presumption payback calculation is 

discussed in section IV.D of this NOPR and chapter 8 of the NOPR TSD. 

IV. Methodology and Discussion 

In November 2006, DOE published a notice of public meeting and availability of the 

framework document. 71 FR 67825 (Nov. 24, 2006). DOE initially presented its proposed 

methodology for the analyses pertaining to the heating products rulemaking in the framework 

document. After receiving comments from interested parties on the approaches proposed in the 

framework document, DOE modified its methodology and assumptions, and performed a 

preliminary analysis for heating products. Subsequently, DOE published a notice of public 

meeting on January 13, 2009. 74 FR 1643. In the Executive Summary of that notice and 

preliminary TSD which accompanied it, DOE detailed its preliminary analysis conducted for the 

heating products rulemaking, including methodology, assumptions, and results. After receiving 

further comment from interested parties on the analytical approach and results of the preliminary 

analysis, DOE further refined its analyses for today’s NOPR. 

 DOE used two spreadsheet tools to estimate the impact of today’s proposed standards. 

The first spreadsheet calculates LCCs and PBPs of potential new energy conservation standards. 

The second provides shipments forecasts and then calculates national energy savings and net 

present value impacts of potential new energy conservation standards. DOE also assessed 

manufacturer impacts, largely through use of the Government Regulatory Impact Model 

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EE-2006-STD-0129 COMMENT 56.1
 

(GRIM). These spreadsheets are available online at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/ waterheaters.html. 

Additionally, DOE estimated the impacts on utilities and the environment of potential 

energy efficiency standards for the three heating products. DOE used a version of EIA’s National 

Energy Modeling System (NEMS) for the utility and environmental analyses. The NEMS model 

simulates the energy sector of the U.S. economy. EIA uses NEMS to prepare its AEO, a widelyknown energy forecast for the United States. The EIA approves the use of the name NEMS to 

describe only an AEO version of the model without any modification to code or data. For more 

information on NEMS, refer to The National Energy Modeling System: An Overview 1998. 

DOE/EIA–0581 (98) (Feb. 1998) (available at: 

http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf). 

The version of NEMS used for appliance standards analysis is called NEMS-BT. Because 

the present analysis entails some minor code modifications and runs the model under various 

policy scenarios that deviate from AEO assumptions, the name “NEMS-BT” refers to the model 

as used here. (“BT” stands for DOE’s Building Technologies Program.) NEMS-BT offers a 

sophisticated picture of the effect of standards because it accounts for the interactions between 

the various energy supply and demand sectors and the economy as a whole. 

A. Market and Technology Assessment 

1. Consideration of Products for Inclusion in This Rulemaking 

In this subsection, DOE is presenting its determination of scope and coverage for the 

rulemaking. Specifically, this subsection addresses whether EPCA covers certain products and 

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EE-2006-STD-0129 COMMENT 56.1
 

provides DOE with the authority to adopt standards for those products. Second, it addresses 

certain types of heating products that are covered under EPCA, but for which DOE is not 

proposing amended standards at this time, due to other relevant statutory provisions, 

technological limitations, or other considerations. 

a. Determination of Coverage Under the Act 

i. Solar-Powered Water Heaters and Pool Heaters 

As indicated above, EPCA directs DOE to determine whether to amend the energy 

conservation standards that the Act prescribes for residential water heaters and pool heaters. (42 

U.S.C. 6295(e)(4)) Under EPCA, any standard for residential water heaters and pool heaters 

must establish either a maximum amount of energy use or a minimum level of efficiency that is 

based on energy use (42 U.S.C. 6291(5)-(6)). EPCA defines “energy use,” in part, as “the 

quantity of energy” that the product consumes. (42 U.S.C. 6291(4)) Further, EPCA covers these 

two products as consumer products. (42 U.S.C. 6291(2); 6292(a)(4),(9), and (11)) EPCA defines 

“consumer product,” in part, as an article that consumes or is designed to consume energy. (42 

U.S.C. 6291(1)) EPCA defines “energy” as meaning “electricity, or fossil fuels,” or other fuels 

that DOE adds to the definition, by rule, upon determining “that such inclusion is necessary or 

appropriate to carry out the purposes” of EPCA. (42 U.S.C. 6291(3)) DOE does not have 

statutory authority to add solar energy (or any other type of fuel) to EPCA’s definition of 

“energy.” Thus, DOE presently lacks authority to prescribe standards for these products when 

they use the sun's energy instead of fossil fuels or electricity because EPCA currently covers 

only water heaters and pool heaters that use electricity or fossil fuels, and because any “energy 

conservation standard” currently adopted under EPCA for these two products must address or be 

based on the quantity of these fuels, but not solar power, that the product consumes. As to water 

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EE-2006-STD-0129 COMMENT 56.1
heaters, DOE lacks authority to adopt standards for solar-powered products for an additional 

reason. “Water heater” under EPCA currently means “a product which utilizes oil, gas, or 

electricity to heat potable water,” thereby excluding solar water heaters from coverage. (42 

U.S.C. 6291(27); 10 CFR 430.2) 

ii. Add-on Heat Pump Water Heaters 

EPCA defines a residential “water heater,” in part, as a product that “heat[s] potable 

water for use outside the heater upon demand, including ... heat pump type units ... which are 

products designed to transfer thermal energy from one temperature level to a higher temperature 

level for the purpose of heating water, including all ancillary equipment such as fans, storage 

tanks, pumps, or controls necessary for the device to perform its function.” (42 U.S.C. 6291(27); 

10 CFR 430.2) Integral heat pump water heaters are fully functioning water heaters when 

shipped by the manufacturer. They heat water for use outside the appliance upon demand and 

include in a single packaged product all of the components required for operation as a water 

heater. Therefore, integral units meet EPCA’s definition of a “water heater.” 

Another product sold for residential use is commonly known as an add-on heat pump 

water heater. This product typically is marketed and used as an add-on component to a separately 

manufactured, fully functioning storage water heater (usually a conventional electric storagetype unit). The add-on unit consists of a small pump and a heat pump system. The pump 

circulates the refrigerant from the water heater storage tank through the heat pump system and 

back into the tank. The add-on heat pump extracts heat from the surrounding air and transfers it 

to the water in a process that is much more efficient than traditional electric resistance designs. 

The unit can be mounted on top of the storage tank, or can be separately placed on the floor or 

49
 

EE-2006-STD-0129 COMMENT 56.1
mounted on a wall. Add-on units cannot by themselves provide hot water on demand, but rather 

heat water only after being added to a storage-type water heater. Manufacturers do not ship the 

product as a fully-functioning water heating unit or paired with a storage tank. The add-on 

device, by itself, is not capable of heating water and lacks much of the equipment necessary to 

operate as a water heater. As such, it does not meet EPCA’s definition of a “water heater” and 

currently is not a covered product. Consequently, DOE is not proposing in this rulemaking to 

adopt energy conservation standards for such add-on heat pump units. 

iii. Gas-Fired Instantaneous Water Heaters with Inputs Above and Below the Levels 

Specified in Existing Definitions 

Another element of EPCA’s definition of a residential “water heater” is that it includes 

“instantaneous type units which heat water but contain no more than one gallon of water per 

4,000 Btu [British thermal units (Btu)] per hour of input, including gas instantaneous water 

heaters with an input of 200,000 Btu per hour or less ....” (42 U.S.C. 6291(27)(B); 10 CFR 

430.2) DOE’s test procedure for residential water heaters implements and elaborates on this 

definition: “Gas Instantaneous Water Heater means a water heater that ... has an input greater 

than 50,000 Btu/hr (53 MJ/h) but less than 200,000 Btu/h (210 MJ/h) ....” 10 CFR part 430, 

subpart B, appendix E, section 1.7.2. During the preliminary analysis and as today’s NOPR was 

developed, DOE considered whether to evaluate for standards gas-fired instantaneous water 

heaters with inputs greater than 200,000 Btu/h and less than 50,000 Btu/h. 

DOE’s review of product literature from manufacturers of gas-fired instantaneous water 

heaters indicates that the majority of such products rated for residential, whole-house use has an 

input capacity of 199,000 Btu/h, and, thus, are covered by this rulemaking. Given the limitations 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

set by Congress, residential gas-fired instantaneous water heaters with inputs greater than 

200,000 Btu/h do not meet EPCA’s definition of a “water heater.” Consequently, DOE is not 

proposing in this rulemaking to adopt energy conservation standards for such products. 

Regarding the lower end of the range, DOE reviewed Air-Conditioning, Heating, and 

Refrigeration Institute’s (AHRI)3

 Consumers' Directory of Certified Efficiency Ratings for 

Heating and Water Heating Equipment and manufacturer literature to determine the input 

capacities of products currently being offered for sale on the U.S. market. DOE found that the 

Directory contains only one gas-fired instantaneous water heater with an input capacity less than 

50,000 Btu/h. Moreover, DOE determined that this product has been discontinued and is being 

replaced by a comparable product that has an input capacity greater than 50,000 Btu/h. 

Therefore, DOE is not proposing standards for products with an input capacity below 50,000 

Btu/h. 

iv. Input Capacity for Residential Pool Heaters and Coverage of Spa Heaters 

Under EPCA, “pool heater” is defined as “an appliance designed for heating nonpotable 

water contained at atmospheric pressure, including heating water in swimming pools, spas, hot 

tubs and similar applications.” (42 U.S.C. 6291(25); 10 CFR 430.2) During a preliminary phase 

of this rulemaking, DOE considered excluding from consideration pool heaters with an input 

capacity greater than 1 million Btu/h, based on its understanding that manufacturers market such 

pool heaters as light industrial or commercial products. Subsequently, two manufacturers advised 

3

 The Air-Conditioning, Heating, and Refrigeration Institute (AHRI) is the trade association that represents 

manufacturers of heating products. It was formed on January 1, 2008, by the merger of the Gas Appliance 

Manufacturers Association (GAMA), which formerly represented these manufacturers, and the Air-Conditioning 

and Refrigeration Institute. AHRI maintains a Consumers' Directory of Certified Product Performance for water 

heaters, direct heating equipment, and pool heaters which can be found on AHRI’s website at 

http://www.ahridirectory.org/ahridirectory/pages/home.aspx. 

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EE-2006-STD-0129 COMMENT 56.1
DOE that the industry defines residential pool heaters as having an input capacity of less than or 

equal to 400,000 Btu/h. These comments suggested that DOE should use this capacity limit in its 

definition of residential pool heaters and for determining the scope of coverage of this product 

under EPCA. 

As indicated by its definition of “pool heater,” quoted above, EPCA places no capacity 

limit on the pool heaters it covers. (42 U.S.C. 6291(25)) Furthermore, EPCA covers pool heaters 

as a “consumer product,” (42 U.S.C. 6291(2), 6292(a)(11)) and defines “consumer product,” in 

part, as an article that “to any significant extent, is distributed in commerce for personal use or 

consumption by individuals.” (42 U.S.C. 6291(1)) These provisions establish that EPCA, and 

standards adopted under it, apply to any pool heater distributed to any significant extent as a 

consumer product for residential use, regardless of input capacity; pool heaters marketed as 

commercial equipment, which contain additional design modifications related to safety 

requirements for installation in commercial buildings, are not covered by this standard. 

Therefore, DOE has tentatively concluded that an input capacity limit is neither necessary nor 

appropriate to determine the scope of coverage of this product under EPCA. 

Regarding whether spa heaters, which heat the water in spas, are covered products, DOE 

notes that EPCA defines a “pool heater” to include appliances “designed for ... heating water in 

... spas.” (42 U.S.C. 6291(25); 10 CFR 430.2) As the definition encompasses spa heaters, they 

are covered by EPCA as well as by the current standards for pool heaters, and DOE has included 

them in this rulemaking. Because spa heaters and pool heaters perform similar functions, include 

similar features, and lack performance or operating features that would cause them to have 

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EE-2006-STD-0129 COMMENT 56.1
 

 

inherently different energy efficiencies, DOE has not created a separate product class for such 

units. 

v. Vented Hearth Products 

As discussed in section II.C.2 above, before the enactment of NAECA, EPCA included 

“home heating equipment” in DOE’s appliance standards program. EPCA did not define “home 

heating equipment.” NAECA’s amendments to EPCA included replacing the term “home heating 

equipment” with “direct heating equipment,” and specified energy conservation standards for 

“direct heating equipment.” However, EPCA did not define this term, and subsequent legislation 

has not amended EPCA to provide a definition of “direct heating equipment.” 

DOE defined “home heating equipment” and related terms in its regulations. These 

definitions inform the meaning of “direct heating equipment.” 10 CFR 430.2. Specifically, DOE 

defines “home heating equipment” as meaning “vented home heating equipment and unvented 

home heating equipment,” and defines each of these two terms. Id. The definition of “vented 

home heating equipment,” relevant here, is as follows: 

... a class of home heating equipment, not including furnaces, designed to furnish 

warmed air to the living space of a residence, directly from the device, without duct 

connections (except that boots not to exceed 10 inches beyond the casing may be 

permitted) and includes: vented wall furnace, vented floor furnace, and vented room 

heater.” Id. 

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EE-2006-STD-0129 COMMENT 56.1
DOE also defines the last three terms in this definition. Id. In order to provide additional clarity 

for interested parties, DOE is proposing to define the term “direct heating equipment” in today’s 

rulemaking. Specifically, DOE is proposing to add the following definition in 10 CFR 430.2: 

Direct heating equipment means vented home heating equipment and unvented home 

heating equipment. 

Given that background, the following addresses the issue of vented hearth products. 

Vented hearth products include gas-fired products such as fireplaces, fireplace inserts, 

stoves, and log sets that typically include aesthetic features such as a yellow flame. Consumers 

typically purchase these products to add aesthetic qualities and ambiance to a room, and the 

products also provide space heating. They provide such heating by furnishing warmed air to the 

living space of a residence directly from the device without duct connections. There are two 

types of vented hearth product designs: (1) recessed and (2) non-recessed. Recessed products are 

typically incorporated into or attached to a wall, whereas non-recessed products are typically 

free-standing and not attached to a wall. Both may include fireplace or hearth aesthetics, and the 

recessed product may include a surrounding mantle. 

Vented hearth products meet DOE’s definition of “vented home heating equipment,” 

because they are designed to furnish warmed air to the living space of a residence without duct 

connections. Furthermore, recessed and non-recessed vented hearth products are similar in 

design to some of the direct heating products for which EPCA prescribes standards, namely gas 

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wall fan and gravity-type furnaces in the case of recessed products, and room heaters in the case 

of non-recessed products. 

In sum, DOE has tentatively concluded that vented hearth products are covered products 

under EPCA, because they meet DOE’s definition for “vented home heating equipment” and, 

therefore, are classified as DHE. Thus, DOE proposes to establish standards for these products in 

this rulemaking and subject these products to the existing testing and certification provisions for 

DHE. See section IV.2 and IV.3, below, for additional discussion on DOE’s proposal for 

establishing coverage of hearth products and the product classes for the rulemaking analyses. If 

DOE finalizes this rulemaking as proposed for hearth type DHE, manufacturers of these products 

would be subject to the provisions in 10 CFR parts 430.23, 430.24, 430.27, 430.32, 430.33, 

430.40 through 430.49, 430.50 through 430.57, 430.60 through 430.65, and 430.70 through 

430.75, which currently apply to DHE. DOE seeks comment on the potential burdens to 

manufacturers of hearth-type DHE as a result of the testing, certification, reporting, and 

enforcement provisions in these sections. (See Issue 2 under “Issues on Which DOE Seeks 

Comment” in section VII.E of this NOPR.) 

b. Covered Products Not Included in This Rulemaking 

i. Unvented Direct Heating Equipment (Including Electric Equivalents to Gas-Fired 

Products) 

When EPCA included “home heating equipment” as a covered product, DOE construed 

this term as including unvented as well as vented products, and prescribed a separate test 

procedure for each one. 43 FR 20128 (May 10, 1978); 43 FR 20147 (May 10, 1978). Each of 

these test procedures has since been amended, and they are codified in 10 CFR part 430, subpart 

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EE-2006-STD-0129 COMMENT 56.1
 

B, appendices G and O, respectively. The new energy conservation standards for this equipment 

in NAECA’s amendments to EPCA in 1987 were only for gas products, however, and used the 

AFUE descriptor, which applies to vented but not unvented equipment. (42 U.S.C. 6295(e)(3)) 

The AFUE descriptor is generally a measure of the amount of heat provided by the product 

compared to the amount of fuel supplied. Subsequent DOE actions concerning DHE⎯first in a 

NOPR proposing standards for eight separate products, 59 FR 10464 (March 4, 1994), and then 

in a final rule adopting test procedure amendments for DHE, 62 FR 26140 (May 12, 

1997)⎯have focused solely on vented products. This approach reflects DOE’s understanding 

that because unvented heating products dissipate any heat losses directly into the conditioned 

space rather than elsewhere through a vent, the amount of energy losses from these products is 

minimal. 

The current test procedure for unvented equipment includes neither a method for 

measuring energy efficiency nor a descriptor for representing the efficiency of unvented home 

heating equipment. Instead, the current test procedure focuses on a method to measure and 

calculate the annual energy consumption of unvented equipment.10 CFR part 430, subpart B, 

appendix G. Nevertheless, it remains the case that the unvented products in question would 

dissipate any heat losses directly into the conditioned space, thereby resulting in minimal overall 

energy losses. Thus, DOE sees little benefit from setting a minimum efficiency level for these 

products and believes that it would be unnecessary to do so, given the extremely limited energy 

savings that could be achieved by such a standard. For these reasons, and consistent with 

previous rulemakings in which it has addressed DHE, DOE has not evaluated unvented products 

in this rulemaking and is not proposing standards for them at this time. 

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EE-2006-STD-0129 COMMENT 56.1
ii. Electric Pool Heaters 

EPCA’s definition of “pool heater,” quoted above, is not limited to appliances that use a 

particular type or types of fuel. (42 U.S.C. 6291(25); 10 CFR 430.2) Thus, EPCA covers both 

gas-fired pool heaters and electric pool heaters, including heat pump pool heaters. EPCA also 

specifies that the energy efficiency descriptor for residential pool heaters is thermal efficiency. 

(42 U.S.C. 6291(22)(E)). Lastly, EPCA defines the term “thermal efficiency of pool heaters” as 

“a measure of the heat in the water delivered at the heater outlet divided by the heat input of the 

pool heater as measured under test conditions specified in section 2.8.1 of the American National 

Standard for Gas Fired Pool Heaters, Z21.56-1986, or as may be prescribed by the Secretary.” 

(42 U.S.C. 6291(26)) 

Currently, DOE’s test procedures specify only a method for testing gas-fired pool heaters 

(10 CFR part 430, subpart B, appendix P), and the current energy conservation standard for pool 

heaters is a minimum level of thermal efficiency that applies only to gas-fired products. In order 

for DOE to consider an energy conservation standard for electric pool heaters, DOE would first 

need to establish a test procedure for electric pool heaters using the thermal efficiency metric 

required by EPCA. DOE seeks comments from interested parties on how DOE could address 

EPCA’s efficiency descriptor requirements in a future potential test procedure revision for 

electric pool heaters. For this reason, DOE is proposing amended standards for gas-fired pool 

heaters only and is not considering standards for electric pool heaters. This is identified as Issue 

3 in Section VII.E, “Issues on Which DOE Seeks Comment.” 

iii. Tabletop and Electric Instantaneous Water Heaters 

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EE-2006-STD-0129 COMMENT 56.1
 

Standards are currently applicable to tabletop and electric instantaneous water heaters. 

(10 CFR 430.32(d)) These products meet EPCA’s definition of “water heater” (42 U.S.C. 

6291(27); 10 CFR 430.2) and are covered by the Act because they utilize electricity to heat 

potable water for use outside the heater upon demand. However, for the reasons explained 

below, DOE has not analyzed tabletop water heaters and electric instantaneous water heaters in 

this rulemaking, and is not proposing amended standards for them, because of the limited 

potential for energy savings from higher standards for these products. 

Tabletop products are primarily electric and are relatively small units because they are 

designed to be located underneath tabletops in highly specialized applications. The only means 

of which DOE is aware for manufacturers to increase the energy efficiency of tabletop units is to 

increase the thickness of their insulation, which would make them larger. Manufacturers already 

maximize the size of these water heaters in order to meet the currently required minimum energy 

factors, and size restrictions do not allow the units to be any larger. Thus, DOE is unaware of any 

means to make tabletop water heaters more energy efficient. Put another way, if DOE were to 

adopt a higher efficiency standard for this product, it would force this class of covered product 

off the market, in violation of 42 U.S.C. 6295(o)(4). For these reasons, DOE has not evaluated 

tabletop products in this rulemaking and is not proposing standards for them. 

Regarding electric instantaneous water heaters, DOE notes that the energy efficiency 

metric for electric instantaneous water heaters (and all other water heaters) is a combination of 

recovery efficiency and standby losses. All electric water heaters, including instantaneous 

products, have minor losses in recovery efficiency. Moreover, electric instantaneous water 

heaters have negligible standby losses because they store no more than two gallons of hot water. 

58
 

EE-2006-STD-0129 COMMENT 56.1
In addition, many of the electric instantaneous products currently on the market perform well 

above the existing applicable energy conservation standard and use available technologies to 

produce negligible standby losses. Therefore, DOE has not evaluated electric instantaneous 

water heaters in this rulemaking and is not proposing standards for them. 

iv. Combination Water Heating/Space Heating Products 

EPCA authorizes DOE to set more than one standard for any product that performs more 

than one major function by setting one energy conservation standard for each major function. (42 

U.S.C. 6295(o)(5)) Some products on the market provide both water heating and space heating. 

To the extent such combination products meet EPCA’s criteria for coverage, DOE could set 

standards for them, including a separate standard for each of those functions. Id. However, 

because DOE’s current test procedure cannot handle combination appliances and DOE has not 

yet adopted a test procedure to determine the energy efficiency of these combination appliances, 

DOE has not evaluated them in this rulemaking and is not proposing standards for them. 

2. Definition of Gas Hearth Direct Heating Equipment 

In the preliminary analysis, DOE stated that vented hearth products can be used to 

provide residential space heating. When used to furnish heat to a living space, DOE reasoned 

that these products provide the same function and utility as vented heaters. DOE stated in the 

preliminary analysis that hearth heaters also provide the same utility and function as gas wall 

furnaces or gas room heaters, and do not use any unique technologies. See chapter 2 of the 

preliminary TSD. Additionally, AHRI’s Consumers’ Directory categorizes fireplace heaters as 

either room heaters or wall furnaces. DOE treated gas hearth DHE as either a room heater or a 

wall furnace for the purposes of the preliminary analysis and requested comment in the 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Executive Summary to the preliminary TSD on the need for a separate product definition and 

class for gas hearth DHE. 

AHRI stated that gas-fired hearth heaters need a unique definition but that they can be 

included within the room heater DHE product class. AHRI further stated that DOE should use 

the safety standard in the American National Standards Institute (ANSI) Standard Z.21-88, 

Vented Fireplace Heaters as a reference for developing a fireplace heater definition. (AHRI, 

Public Meeting Transcript, No. 34.4 at p. 36) 

DOE agrees with AHRI and has decided to establish a separate definition for “hearth 

direct heating equipment” to allow manufacturers to easily determine coverage under DOE’s 

regulations. DOE has determined that hearth DHE should not be included with room heater DHE 

(the alternative suggested by AHRI) due to the unique constraints on hearth products that are not 

applicable to room heaters because of the former’s aesthetic appeal to consumers (e.g., glass 

viewing panes, yellow flames, and ceramic log sets). DOE reviewed the “vented gas fireplace 

heater” definition in ANSI Standard Z.21-88, as suggested by AHRI. The “vented gas fireplace 

heater” definition in ANSI Standard Z.21-88 reads as follows: 

Vented gas fireplace heater is a vented appliance which simulates a solid fuel fireplace 

and furnishes warm air, with our without duct connections, to the space in which it is 

installed. A vented gas fireplace heater is such that it may be controlled by an automatic 

thermostat. The circulation of heating room air may be by gravity or mechanical means. 

A vented gas fireplace heater may be freestanding, recessed, zero clearance, or a gas 

fireplace insert. 

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EE-2006-STD-0129 COMMENT 56.1
 

Part of the “vented gas fireplace heater” definition specified by ANSI Standard Z.21-88 

would conflict with DOE’s definition of “home heating equipment.” 10 CFR 430.2. Specifically, 

all types of home heating equipment under DOE’s regulations must function without duct 

connections (although boots not to exceed 10 inches beyond the casing may be permitted). 

Therefore, DOE is modifying the definition of “vented gas fireplace heater” in ANSI Standard 

Z.21-88 to be consistent with the types of equipment covered under DOE’s authority for home 

heating equipment. Consequently, in order to account for hearth DHE, DOE is proposing a 

definition of “vented hearth heater” in section 430.2 to read as follows: 

Vented hearth heater means a vented, freestanding, recessed, zero clearance fireplace 

heater, a gas fireplace insert or a gas-stove, which simulates a solid fuel fireplace and is 

designed to furnish warm air, without ducts to the space in which it is installed. 

DOE seeks comment on its definition for “vented hearth heater.” (See Issue 4 under “Issues on 

Which DOE Seeks Comment” in section VII.E of this NOPR.) 

3. Product Classes 

In evaluating and establishing energy conservation standards, DOE generally divides 

covered products into classes by the type of energy used or by capacity or other performancerelated feature that justifies a different standard for products having such feature. (See 42 U.S.C. 

6295(q)) In deciding whether a feature justifies a different standard, DOE must consider factors 

such as the utility of the feature to users. Id. DOE normally establishes different energy 

conservation standards for different product classes based on these criteria. 

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EE-2006-STD-0129 COMMENT 56.1
 

Table IV.1 presents the product classes for the three types of heating products under 

consideration in this rulemaking. The subsections below provide additional details, discussion of 

comments relating to the product classes for the three heating products, as well as identified 

issues on which DOE is seeking comments. 

Table IV.1 Proposed Product Classes for the Three Heating Products 

Residential Water Heater Type Characteristics 

Gas-Fired Storage Type Nominal input of 75,000 Btu/h or less; rated 

storage volume from 20 to 100 gallons 

Oil-Fired Storage Type Nominal input of 105,000 Btu/h or less; rated 

storage volume of 50 gallons or less 

Electric Storage Type Nominal input of 12 kW (40,956 Btu/h) or less; 

rated storage volume from 20 to 120 gallons 

Gas-Fired Instantaneous 

Nominal input of over 50,000 Btu/h up to 

200,000 Btu/h; rated storage volume of 2 

gallons or less 

Direct Heating Equipment Type Heating Capacity (Btu/h) 

Gas Wall Fan Type Up to 42,000 

Over 42,000 

Gas Wall Gravity Type 

Up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Floor Up to 37,000 

Over 37,000 

Gas Room 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Hearth 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Pool Heater Type Characteristics 

Residential Pool Heaters Gas-fired 

a. Water Heaters 

Residential water heaters can be divided into various product classes categorized by 

physical characteristics that affect product efficiency. Key characteristics affecting the energy 

62 

EE-2006-STD-0129 COMMENT 56.1
 

 

efficiency of the residential water heater are the type of energy used and the volume of the 

storage tank. 

The existing Federal energy conservation standards for residential water heaters 

correspond to the efficiency levels promulgated by the January 2001 final rule, as shown in 10 

CFR 430.32(d). These product classes are differentiated by the type of energy used (i.e., electric, 

gas, or oil) and the type of storage for the water heater (i.e., storage, tabletop, or instantaneous). 

In this rulemaking, DOE has excluded tabletop water heaters and electric instantaneous water 

heaters from consideration for the reasons discussed above. Table IV.2 shows the four product 

classes presented in the preliminary analysis for consideration in today’s rulemaking. 

Table IV.2 Product Classes for Residential Water Heaters Described in the Preliminary 

Analysis* 

Residential Water Heater Type Characteristics 

Gas-Fired Storage Type Nominal input of 75,000 Btu/h or less; rated storage 

volume from 20 to 100 gallons 

Oil-Fired Storage Type Nominal input of 105,000 Btu/h or less; rated storage 

volume of 50 gallons or less 

Electric Storage Type Nominal input of 12 kW (40,956 Btu/h) or less; rated 

storage volume from 20 to 120 gallons 

Gas-Fired Instantaneous Nominal input of over 50,000 Btu/h up to 200,000 

Btu/h; rated storage volume of 2 gallons or less 

*Only the product classes covered by this rulemaking are shown. The table does not include tabletop and 

instantaneous electric water heaters. 

In response to the preliminary analysis, DOE received several comments from interested 

parties about DOE’s potential product classes and their organization. These comments are 

summarized and addressed immediately below. 

i. Gas-Fired and Electric Instantaneous Water Heaters 

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EE-2006-STD-0129 COMMENT 56.1
 

EEI suggested that DOE should revisit the parameters for the input capacity range for 

gas-fired and electric instantaneous water heaters. Specifically, EEI stated that some gas-fired 

instantaneous water heaters on the market have an input capacity higher than 200,000 Btu/h, and 

some electric instantaneous water heaters have an input capacity much higher than 12 kW. (EEI, 

No. 40 at p. 2) Northwest Energy Efficiency Alliance (NEEA) and Northwest Power and 

Conservation Council (NPCC) recommended combining gas-fired storage and gas-fired 

instantaneous water heaters into one product class, because this would simplify the rulemaking, 

and the commenters do not believe manufacturers will reduce the efficiency of the products they 

offer now (most of which have EF ratings above 0.80) in response. (NEEA and NPCC, No. 42 at 

p. 4) SEISCO commented that DOE should establish a separate product class and definition for 

“electric instantaneous water heaters”. SEISCO recommended creating a definition for “whole 

house electric instantaneous water heaters” and amending the current 12 kilowatt (kW) 

maximum to a more reasonable 18 to 36 kW maximum to more accurately reflect the 

marketplace. (SEISCO, No. 41 at p. 1) 

In response, DOE notes that EPCA’s definition of “water heater,” establishes the input 

capacity limits for residential instantaneous water heaters. Specifically, the term “water heater” 

means “a product which utilizes oil, gas, or electricity to heat potable water for use outside the 

heater upon demand, including ... (B) instantaneous type units which heat water but contain no 

more than one gallon of water per 4,000 Btu per hour of input, including gas instantaneous water 

heaters with an input of 200,000 Btu per hour or less, oil instantaneous water heaters with an 

input of 210,000 Btu per hour or less, and electric instantaneous water heaters with an input of 

12 kilowatts or less...” (42 U.S.C. 6291(27)) As noted above, this statutory definition 

demonstrates that residential, gas-fired instantaneous water heaters with inputs greater than 

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EE-2006-STD-0129 COMMENT 56.1
200,000 Btu/h and residential, electric instantaneous water heaters with inputs greater than 12 

kW do not meet the definitions of a “water heater” under EPCA. Accordingly, instantaneous 

water heaters outside the specified capacity range are not covered products under EPCA and are 

outside DOE’s authority for standard setting pursuant to 42 U.S.C. 6295(e)(4). The input 

capacity ranges for gas-fired instantaneous water heaters and electric instantaneous water heaters 

are discussed further in sections IV.A.1.a and IV.A.1.b , respectively, of today’s NOPR. 

Additionally, DOE disagrees with the suggestion from NEEA and NPCC that DOE 

should combine the gas-fired storage and gas-fired instantaneous water heater product classes for 

this rulemaking. As noted earlier in this section, storage capacity is a key characteristic affecting 

the energy efficiency of water heaters, and it is within DOE’s authority to divide products into 

classes based on capacity. (42 U.S.C. 6295(q)) Thus, DOE is maintaining separate product 

classes for gas-fired storage and gas-fired instantaneous water heaters for today’s NOPR. 

ii. Low-Boy Water Heaters 

AHRI recommended establishing a separate product class for low-boy heaters since they 

must fit under a 36-inch counter, be less than 34 inches high, and have a jacket diameter of less 

than 26 inches. AHRI stated that low-boy heaters provide a specific utility to space-constrained 

residences and that these products cannot be made any larger. Low-boy heaters account for 

approximately 18 percent of the residential market. (AHRI, No. 43 at p. 3) 

DOE does not agree that a separate product class needs to be established for low-boy 

water heaters. In evaluating and establishing energy conservation standards, DOE generally 

divides covered products into classes by the type of energy used, or by capacity or another 

65
 

EE-2006-STD-0129 COMMENT 56.1
 

performance-related feature that justifies a different standard. (See 42 U.S.C. 6295(q)) DOE 

notes that low-boy water heaters use the same type of energy (i.e., gas or electricity) and are 

offered in a range of storage volumes. Thus, the type of energy used and the functionality of lowboy units are similar to other types of water heaters, and the size constraints of these units do not 

appear to impact energy efficiency, since many “low-boy” models have efficiencies that are 

comparable to standard-size water heaters currently available on the market. 

DOE seeks comment on its product classes for water heaters. In particular, DOE is 

seeking further comment about the need for a separate product class for low-boy water heaters. 

(See Issue 5 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.) 

iii. Ultra-Low NOX Water Heaters 

In the preliminary analysis, DOE did not distinguish ultra-low NOX gas-fired storage 

water heaters from traditional gas-fired storage water heaters with standard burners. AHRI 

recommended establishing a separate product class. AHRI argued that these water heaters 

employ unique burners, designed to meet the ultra-low NOX requirements (imposed by local air 

quality management districts to limit NOX emissions of certain products), but which limit the 

manufacturer's options to increase efficiency. (AHRI, No. 43 at p. 2) 

Rheem commented that instantaneous gas-fired water heater ultra-low NOX requirements 

from local air quality management districts will commence in 2012 and that this product design 

should be included in the analysis. (Rheem, No. 49 at p. 7) 

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EE-2006-STD-0129 COMMENT 56.1
DOE does not agree that a separate product class needs to be established for ultra-low 

NOX gas-fired storage water heaters. As noted above, in evaluating and establishing energy 

conservation standards, DOE generally divides covered products into classes by the type of 

energy used, or by capacity or other performance-related feature that justifies a different standard 

for products having such feature. (See 42 U.S.C. 6295(q)) Ultra-low NOX gas-fired storage water 

heaters use the same type of energy (i.e., gas) and are offered in comparable storage volumes to 

traditional gas-fired storage water heaters using standard burners. In deciding whether the 

product incorporates a performance feature that justifies a different standard, DOE must consider 

factors such as the utility of the feature to users. Id. In terms of water heating, DOE believes 

ultra-low NOX water heaters provide the same utility to the consumer. However, DOE also notes 

that ultra-low NOX water heaters do incorporate a specific burner technology allowing these 

units to meet the strict emissions requirements of local air quality management districts. 

Consequently, DOE developed an analysis on ultra-low-NOX gas-fired storage water heaters. See 

section IV.C.2 for additional details. DOE requests comment from interested parties regarding 

the approach to the analysis for ultra-low NOX gas-fired storage water heaters. As indicated in 

section VII.E under Issue 6, DOE also seeks further comment about the need for a separate 

product class for ultra-low NOX water heaters. 

iv. Gas-Fired and Electric Storage Water Heaters Product Class Divisions 

DOE received two comments about the product class divisions for gas-fired and electric 

storage water heaters. ACEEE stated that DOE should consider capacity-based product classes 

for gas-fired and electric storage water heaters. ACEEE stated that EPCA directs DOE to divide 

covered products into product classes by the type of energy used or by capacity or other 

performance-related features that affect efficiency. (42 U.S.C. 6295(q)) ACEEE also stated that 

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EE-2006-STD-0129 COMMENT 56.1
 

DOE's energy efficiency equations demonstrate that capacity (i.e., rated storage volume) is one 

determinant of efficiency. Accordingly, ACEEE recommended separating gas-fired and electric 

storage water heaters into two product classes, including “very large” and “other.” (ACEEE, No. 

35 at p. 2) ACEEE expressed its belief that DOE will not adequately reflect the potential of the 

product classes without considering larger and smaller products as separate product classes. 

(ACEEE, Public Meeting Transcript, No. 34.4 at pp. 66-67) 

ACEEE suggested that gas-fired storage water heaters with an input capacity greater than 

65,000 Btu/h and electric storage water heaters with a rated storage volume greater than 75 

gallons could be in the very large category. (ACEEE, No. 35 at p. 2) ACEEE commented that for 

heat pump water heaters, impacts such as air flow in small residences are much different for a 

50-gallon model than a 30-gallon model. (ACEEE, Public Meeting Transcript, No. 34.4 at pp. 

66-67) 

In light of the above, ACEEE recommended that DOE should propose energy 

conservation standards for electric storage water heater products in the very large category 

requiring a minimum EF of 1.7, which would move the largest electric water heaters to utilize 

heat pump water heater technologies. ACEEE recommended that DOE should propose standards 

for the very large product class of gas-fired storage water heaters requiring a minimum EF of 

0.77, which corresponds to the least-efficient condensing product. (ACEEE, No. 35 at p. 1) 

Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric (SDGE), and 

Southern California Gas Company (SoCal Gas) filed a joint comment and urged DOE to 

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EE-2006-STD-0129 COMMENT 56.1
subdivide gas-fired storage water heaters and electric storage water heaters into subclasses based 

on rated storage volume. (PG&E, SDGE, and SoCal Gas, No. 38 at p. 3) 

DOE believes considering separate efficiency levels for different rated storage volumes 

could offer a way for DOE to capture additional potential energy savings. Instead of dividing 

gas-fired and electric storage water heaters into separate product classes by rated storage volume 

or input capacity as ACEEE suggested, however, DOE is using energy efficiency equations that 

vary with rated storage volume to describe the relationship between rated storage volume and 

energy factor. Historically, DOE has used the energy efficiency equations to account for the 

variability in performance resulting from tank size; these equations consider the increases in 

standby losses as tank volume increases. DOE is using the energy efficiency equations along 

with TSL pairings to consider different amended standards in the proposed rule. DOE further 

discusses the energy efficiency equations and the proposed modifications in section IV.C.7. DOE 

is requesting comment from interested parties on the energy efficiency equations developed for 

gas-fired and electric storage water heaters (See section IV.C.7 and Issue 7 under “Issues on 

Which DOE Seeks Comment” in section VII.E of this NOPR for more information.) In addition, 

DOE further discusses the trial standard levels, which are comprised of various efficiency level 

pairings across the full range of rated storage volumes, in section V.A. 

v. Heat Pump Water Heaters 

In response to DOE’s treatment of heat pump water heaters as a design option for electric 

storage water heaters in the preliminary analysis, DOE received several comments from 

interested parties. All of the commenters urged DOE to establish separate product classes for 

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EE-2006-STD-0129 COMMENT 56.1
traditional electric resistance storage water heaters and heat pump water heaters. Their specific 

comments and DOE’s response are presented below. 

A.O. Smith stated DOE should separate the electric storage water heater product class 

into two products classes – one for electric resistance heaters and one for heat pump water 

heaters. A.O. Smith noted that DOE separated the two classes in the ENERGY STAR criteria. 

A.O. Smith further stated that since heat pump water heaters may not even fit in 30 percent of the 

installations that currently have resistance electric heaters, they cannot be considered to be a 

truly interchangeable technology. (A.O. Smith, No. 37 at p. 9) 

AHRI agreed with some of the concerns DOE noted in the preliminary screening analysis 

for heat pump water heaters. Specifically, AHRI pointed to previous DOE studies, which found 

size-related installation issues with replacing an electric storage water heater with a heat pump 

water heater. To AHRI's knowledge, the heat pump water heater market has not changed 

significantly since DOE’s 2001 water heater rulemaking, even with the recent initiation of the 

ENERGY STAR program and the enactment of legislation that provides a significant tax credit 

for the installation of these systems. With this in mind, AHRI recommended that DOE establish 

a separate product class for heat pump water heaters because its energy source is different than 

that of an electric water heater. While a heat pump water heater does use electricity to operate 

certain components, the actual energy source that heats the water is air. AHRI noted that an 

analogous situation exists for electric furnaces, which are not subject to the same standards as 

heat pump systems. (AHRI, No. 43 at p. 4) 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Rheem also maintains that heat pump water heaters require a separate product class. 

(Rheem, No. 49 at p. 5) Rheem commented that heat pump water heater designs require unique 

installations, air flow, space, condensate drain, service, and operational provisions that are 

considerably different from conventional electric storage water heaters. Rheem also stated that 

installation and air flow conditions will affect energy efficiency, and that heat pump water 

heaters cannot replace all electric storage type water heaters as space and air flow constraints are 

quite common. Furthermore, Rheem commented that heat pump water heater technology 

depends largely on the operating environment; this represents a special performance-related 

consideration that warrants defining a separate product class for heat pump water heaters. 

(Rheem, No. 49 at p. 6) Rheem commented that the utility heat pump water heaters provide is 

not equivalent to other electric storage water heaters across the entire range of rated storage 

volumes. Rheem stated that the reduced delivery performance was recognized by ENERGY 

STAR, which requires a minimum first-hour rating of 50 gallons, instead of 67 gallons for 

common conventional technologies. The difference in utility will result in differing sizing 

guidelines to meet equivalent capacities. Rheem commented that while the primary fuel source 

for heat pump water heaters is assumed to be electricity, the technology attains an economic 

benefit by moving energy from one location to another. According to Rheem, it is conceivable 

that a heat pump water heater may operate and be designed with gas as a primary back-up fuel. 

Rheem noted that with energy factors exceeding 2.0, it can be argued that electricity is no longer 

the dominant fuel source. Rheem commented that these differences support the argument that 

heat pump water heaters are not simply an extension of conventional resistance-type electric 

storage water heaters. (Rheem, No. 49 at pp. 5-6) 

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EE-2006-STD-0129 COMMENT 56.1
 

While DOE acknowledges some of the challenges associated with heat pump water 

heaters, DOE does not agree that they require a separate product class. Specifically, DOE does 

not believe heat pump water heaters provide a different utility from traditional electric resistance 

water heaters. Heat pump water heaters provide hot water to a residence just as a traditional 

electric storage water heater. In addition, both heat pump water heaters and traditional electric 

resistance storage water heaters use electricity as the primary fuel source. DOE believes heat 

pump water heaters can replace traditional electric resistance storage water heaters in most 

residences, although the installation requirements may be quite costly. DOE further addresses 

heat pump water heaters in the screening analysis at section IV.B.3 and the installation 

requirements in section IV.E.2.a. 

DOE seeks further comment on the need for a separate product class for heat pump water 

heaters. In particular, DOE is interested in receiving comments and data on whether a heat pump 

water heater can be used as a direct replacement for an electric resistance water heater, and the 

types and frequency of installations where a heat pump water heater cannot be used as a direct 

replacement for an electric resistance water heater. (See Issue 8 under “Issues on Which DOE 

Seeks Comment” in section VII.E of this NOPR.) 

b. Direct Heating Equipment 

DHE can be divided into various product classes categorized by physical characteristics 

and rated input capacity, both of which affect product efficiency and function. Key 

characteristics affecting the energy efficiency of DHE are the physical construction (i.e., fan wall 

units contain circulation blowers), intended installation (i.e., floor furnaces are installed with the 

majority of the unit outside of the conditioned space), and input capacity. 

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EE-2006-STD-0129 COMMENT 56.1
In the preliminary analysis, DOE examined the possibility of consolidating product 

classes for DHE. (See chapter 3 of the preliminary TSD.) NAECA originally established the 

Federal energy conservation standards, which are differentiated by input capacity range. Thus, to 

determine whether consolidation of existing product classes is appropriate, DOE examined the 

relationship between AFUE and input rating for DHE. The results of this inquiry are presented 

below. 

i. Gas Wall Fan-Type Direct Heating Equipment 

For fan-type wall furnaces, DOE surveyed AHRI’s Consumers' Directory and available 

product literature. DOE identified available products ranging from 8,000 to 65,000 Btu/h. The 

market data demonstrate two separate trends for fan-type wall furnaces based on the efficiency 

range of the products. For higher-efficiency products (i.e., 78 percent AFUE and higher), DOE 

noticed that efficiency decreases as capacity increases. For lower-efficiency products (i.e., 73 to 

77 percent AFUE), DOE noticed that efficiency increases as capacity increases. Therefore, 

because of the differing trends between capacity and efficiency, DOE proposes that the two 

product classes for gas wall fan-type DHE should remain. 

ii. Gas Wall Gravity-Type Direct Heating Equipment. 

DOE examined the relationship between AFUE and input rating for gravity-type wall 

furnaces by reviewing AHRI’s Consumers' Directory and available product literature. DOE 

identified products with input capacities ranging from 5,000 to 50,000 Btu/h. The Federal energy 

conservation standards for gas wall gravity-type furnaces divide these products into seven 

product classes based on input capacity ranges. The seven product classes are differentiated by 

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one AFUE percentage point increase for each increase in input capacity range (i.e., the larger the 

input capacity, the higher the AFUE requirements). The market data for gas wall gravity-type 

furnaces indicate that manufacturers are not offering products over the entire input capacity 

range. Therefore, some product classes may be unnecessary. DOE proposes that five product 

classes (up to 10,000 Btu/h, over 10,000 and up to 12,000 Btu/h, over 12,000 and up to 15,000 

Btu/h, over 15,000 and up to 19,000 Btu/h, and over 19,000 and up to 27,000 Btu/h) be 

consolidated into a single product class labeled up to 27,000 Btu/h, leaving three product classes 

for gas wall gravity-type furnaces. 

iii. Gas Floor-Type Direct Heating Equipment 

DOE surveyed the current market for gas floor furnaces by reviewing AHRI’s 

Consumers' Directory and available product literature. The AHRI directory lists 23 products. The 

Federal energy conservation standard includes two product classes divided by input ratings, one 

above and one at or below 37,000 Btu/h. According to the AHRI directory, more than 75 percent 

of products are rated above 37,000 Btu/h. When comparing the models with the highest AFUE 

rating between the two product classes in the preliminary analysis, however, DOE found that the 

energy savings potential increases as the input capacity range increases. This fact suggests that 

input capacity affects the AFUE of gas floor-type furnaces. Therefore, DOE proposes that the 

two product classes for gas floor-type DHE should remain. 

iv. Gas Room-Type Direct Heating Equipment 

DOE examined currently available room heaters by reviewing AHRI’s Consumers' 

Directory and product literature. DOE found that room heaters have inputs ranging from 20,000 

to 70,000 Btu/h. DOE also determined that the relationship between AFUE and input rating 

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established by the Federal energy conservation standards is generally similar to the trend found 

among products listed in the AHRI directory. The market data show a general trend of increasing 

AFUE with input capacity range. DOE is proposing to consolidate the two lower input capacity 

ranges into a single product class (i.e., input ratings up to 20,000 Btu/h), because there are no 

products in the AHRI directory under 20,000 Btu/h and all products at this input rating have the 

same efficiency. As a result, DOE is proposing only four product classes for gas room heaters. 

Overall, DOE only received one comment in response to its product class consolidation 

for the existing DHE product types in the preliminary analysis. AHRI agreed that the number of 

product classes (i.e., divisions by input capacity) for DHE product classes can be reduced. 

(AHRI, Public Meeting Transcript, No. 34.4 at p. 43) 

Therefore, for the NOPR, DOE is proposing to reduce the number of product classes as 

suggested in the preliminary analysis and described above. DOE is seeking comments on the 

proposed product classes. (See Issue 9 under “Issues on Which DOE Seeks Comment” in section 

VII.E of this NOPR.) 

v. Gas Hearth Direct Heating Equipment 

DOE is proposing to add new product classes for gas hearth DHE, which are 

distinguished by input heating capacity. DOE modeled the product class divisions for gas hearth 

DHE after the proposed product class divisions for room heaters. DOE is seeking comments on 

the proposed product class divisions for gas hearth DHE. (See Issue 10 under “Issues on Which 

DOE Seeks Comment” in section VII.E of this NOPR.) 

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Table IV.3 presents the proposed product classes for DHE being considered for this 

rulemaking. 

Table IV.3 Proposed Product Classes for Direct Heating Equipment 

Direct Heating Equipment Type Input Heating Capacity 

Btu/h 

Gas Wall Fan Type Up to 42,000 

Over 42,000 

Gas Wall Gravity Type 

Up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Floor Up to 37,000 

Over 37,000 

Gas Room 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

Gas Hearth 

Up to 20,000 

Over 20,000 and up to 27,000 

Over 27,000 and up to 46,000 

Over 46,000 

c. Pool Heaters 

As discussed above, the existing Federal energy conservation standards for pool heaters 

correspond to the efficiency levels specified by EPCA, as amended (42 U.S.C. 6295(e)(2)), and 

codified in 10 CFR 430.32(k), classifying residential pool heaters with one product class. This 

product class is distinguished by fuel input type (i.e., gas-fired). DOE notes there are currently 

electric heat pump pool heaters on the market, which are not being considering in today’s 

rulemaking, as discussed in section IV.A.1.b. 

B. Screening Analysis 

DOE uses the following four screening criteria to determine which technology options 

are suitable for further consideration in an energy conservation standards rulemaking: 

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1. Technological feasibility. DOE will consider technologies incorporated in commercial 

products or in working prototypes to be technologically feasible. 

2. Practicability to manufacture, install, and service. If mass production and reliable 

installation and servicing of a technology in commercial products could be achieved on the scale 

necessary to serve the relevant market at the time the standard comes into effect, then DOE will 

consider that technology practicable to manufacture, install, and service. 

3. Adverse impacts on product utility or product availability. If DOE determines a 

technology would have a significant adverse impact on the utility of the product to significant 

subgroups of consumers, or would result in the unavailability of any covered product type with 

performance characteristics (including reliability), features, sizes, capacities, and volumes that 

are substantially the same as products generally available in the United States at the time, it will 

not consider this technology further. 

4. Adverse impacts on health or safety. If DOE determines that a technology will have 

significant adverse impacts on health or safety, it will not consider this technology further. 

10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b). 

In the preliminary analysis, DOE initially identified the technology options that could 

improve the efficiency of the three types of heating products that are the subject of this 

rulemaking. These technologies are listed in Table IV.4. See chapter 3 of the NOPR TSD for a 

detailed description of each technology option. 

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Table IV.4 Technologies DOE Considered for Heating Products 

Water Heaters Direct Heating Equipment Pool Heaters 

Heat Traps Heat Exchanger Improvements Electronic Ignition 

Insulation Improvements Electronic Ignition Improved Heat Exchanger 

Design 

Power Vent (Gas-Fired and Thermal Vent Damper More Effective Insulation 

Oil-Fired Only) (Combustion Chamber) 

Heat Exchanger Electrical Vent Damper Power Venting 

Improvements 

Flue Damper Power Burner Sealed Combustion 

(Electromechanical) 

Side-Arm Heater Induced Draft Condensing Pulse 

Combustion 

Electronic (or Interrupted) Two Stage and Modulating Condensing 

Ignition Operation 

Heat Pump Water Heater Improved Fan or Blower 

(Electric Only) Motor Efficiency 

CO2 Heat Pump Water Heater Increased Insulation (Floor 

Furnaces Only) 

Flue Damper (Buoyancy Condensing 

Operated) 

Directly-Fired Condensing Pulse Combustion 

Condensing Air Circulation Fan 

Condensing Pulse Sealed Combustion 

Combustion 

Thermophotovoltaic and 

Thermoelectric Generators 

Reduced Burner Size (Slow 

Recovery) 

Timer Control 

Two-Phase Thermosiphon 

(tpts) 

Modulating Controls 

Intelligent Controls 

Self-Cleaning 

In response to DOE’s request for comments at the preliminary analysis stage of the 

rulemaking, DOE did not receive any comments suggesting additional technologies beyond those 

technology options presented in the preliminary analysis. Therefore, DOE considered the same 

technology options for the NOPR screening analysis. 

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1. Comments on the Screening Analysis 

In the preliminary analysis, DOE excluded several of the technologies listed in Table 

IV.4 from consideration in this rulemaking based on one or more of the screening criteria 

described above. The technology options that were screened out, along with the reasons for their 

exclusion, are shown below in Table IV.5. For greater detail regarding each technology option, 

please see Chapters 3 and 4 of the TSD accompanying today’s notice. 

Table IV.5 Summary of Screened-Out Technology Options 

Applicable 

Product Types 

Excluded Technology 

Option 

Reasons for Exclusion 

Technological 

Feasibility 

Practicability to 

Manufacture, 

Install, and 

Service 

Adverse 

Impacts on 

Product 

Utility 

Adverse 

Impacts on 

Health of 

Safety 

Water Heaters

Side-Arm Heater X X 

Advanced Insulation X X 

Thermophotovoltaic 

and Thermoelectric 

Generators 

X X 

U-Tube Flue Design X 

CO2 Heat Pump Water 

Heaters

 X 

Two-Phase 

Thermosiphons

 X 

Reduced Burner Size 

(Slow Recovery) 

X 

Directly Fired Water 

Heater 

X 

Flue Damper 

(Buoyancy Operated) 

X 

 Condensing Pulse 

Combustion 

X X 

Direct Heating 

Equipment 

Increased Heat Transfer 

Coefficient 

X 

Power Burner X 

Improved Fan Blower 

Motors

 X 

Condensing Pulse 

Combustion 

X X 

Pool Heaters Condensing Pulse 

Combustion 

X X 

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In response to the screening analysis performed for the preliminary analysis, DOE 

received feedback from several interested parties. 

a. General Comments 

NRDC commented generally that screening technologies because they have not 

penetrated the market for the covered product is a flawed approach. NDRC stated that 

determining if a product is practical to manufacture does not require someone to already be 

manufacturing it. Instead, NRDC stated that when determining whether a product is practical to 

manufacture, DOE should consider identified technology options even if they are not currently 

used in covered products. NRDC stated that DOE should gather data to determine whether 

technologies used in other products would be useful in the products in question. (NRDC, No. 48 

at p. 3) 

In response, as part of every rulemaking, DOE reviews the markets and technologies of 

the appliances under consideration using primary and secondary research. DOE considers 

prototype designs in the analysis that have not yet fully penetrated the market. In the case of a 

prototype design (or any design that has not penetrated the market at the time of the analysis) 

that is not being manufactured on a large scale, DOE examines the practicality of manufacturing, 

installing, and servicing the design, if it were required to be implemented on a larger scale by the 

anticipated compliance date of a standard, and accepts the product or screens it out of the 

analysis on that basis. DOE requires demonstration of a technology in at least a working 

prototype, because even though technologies may be proven for other applications, it may not 

translate to a different produce type for a variety of reasons. NRDC did not point to specific 

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examples of technologies DOE should consider, and hence, it is more difficult for DOE to 

specifically address the comment. 

AHRI commented that DOE should recognize that many DHE products do not require 

electricity. AHRI stated that such designs allow consumers to use these products for emergency 

heat during power outages, which provides a real utility that needs to be factored into DOE’s 

analysis. (AHRI, Public Meeting Transcript, No. 34.4 at p. 21) 

DOE considers the impact of any lessening of utility from standards during the screening 

analysis. If DOE determines a technology would have significant adverse impact on the utility of 

the product to significant subgroups of consumers, or would result in the unavailability of any 

covered product type with performance characteristics (including reliability), features, sizes, 

capacities, and volumes that are substantially the same as products generally available in the 

United States at the time, it will not consider this technology further. DOE considered several 

technology options for DHE that require electricity for the NOPR analyses, including electronic 

ignition systems and blowers or fans. Blowers and fans are generally not necessary for the 

products to operate and, because the equipment can be operated without them, do not impact the 

utility of being able to use the equipment for emergency heat during a power outage. For models 

with electronic ignition systems, electricity is required to light the burner, and, thus, required for 

product operation. In the case of a power failure, however, many products employ battery 

backup systems that can provide the electrical power needed to light the burner (or the pilot in 

the case of intermittent pilot ignitions) during the power outage. Because of this, an electronic 

ignition system with battery backup would not cause any lessening of utility as compared to a 

traditional standing pilot system for DHE. Therefore, DOE did not screen out these technologies. 

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b. Water Heaters 

NEEA and NPCC stated that tank bottom insulation is an effective means of improving 

product efficiency. Accordingly, NEEA and NPCC urged DOE to consider this as a technology 

option for electric storage water heaters because field data from the Pacific Northwest suggest 

that tank bottom insulation decreases standby energy loss, especially when the tank is located on 

a concrete slab. (NEEA and NPCC, No. 42 at p.4) 

DOE considered various improvements in insulation for storage water heaters during the 

screening analysis, including tank bottom insulation. (See chapter 3 of the NOPR TSD for a full 

description of the insulation improvements DOE considered.) DOE notes that tank bottom 

insulation was not screened out during the screening analysis, which is in contrast to advanced 

forms of insulation which were screened out as unproven (e.g., vacuum panels, aerogels). When 

listing the potential technology options at each efficiency level (see section IV.C.3), DOE shows 

only those technologies most commonly used in manufacturing, although specific 

implementation details vary by manufacturer. Manufacturers currently do not use increased tank 

bottom insulation as a primary means of increasing efficiency; therefore, it was not listed as one 

of the technologies used in achieving these efficiency levels for storage water heaters. Hence, 

DOE agrees with NEEA and NPCC that tank bottom insulation is an effective means of 

improving the energy factor of storage water heaters. 

NEEA and NPCC also urged DOE to include as technology options heat pump water 

heaters that use CO2 as the refrigerant. NEEA and NPCC commented that CO2 heat pump water 

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heaters have been sold and serviced by hundreds of thousands of manufacturers in Southeast 

Asia and elsewhere over the last 5 to 10 years. (NEEA and NPCC, No. 42 at pp. 4-5) 

DOE is not considering CO2-based heat pump water heaters because DOE research 

suggests U.S. manufacturers do not have the necessary infrastructure to support manufacturing, 

installation, and service of CO2 heat pump water heaters on the scale necessary to serve the 

relevant market by the compliance date of an amended energy conservation standard. DOE also 

does not believe manufacturers would be able to develop the necessary infrastructure before the 

compliance date of an amended energy conservation standard because these products have not 

penetrated the U.S. market. 

ACEEE commented that DOE should revisit the preliminary conclusions presented in the 

screening analysis, including the tentative decision to not further consider thermophotovoltaic 

and thermoelectric generators. (ACEEE, No. 35 at pp. 3-4) The commenter stated that the 

inclusion of thermophotovoltaic and thermoelectric generators would make other technologies 

such as side-arm themosiphons more feasible. ACEEE asserted that in the case of 

thermophotovoltaic and thermoelectric generators, DOE assumes that line voltage or 24-volt 

power cannot be required for gas-fired storage water heaters. DOE research suggests that the 

amount of power that can be generated by thermophotovoltaic and thermoelectric generators in a 

residential storage water application is quite limited. Commercially-available thermoelectric 

elements for water heaters typically produce less than 0.05 Watts of power, and so-called 

thermopiles can reach as high as 0.75 Watts. While it is theoretically possible to power devices 

other than the customary gas valves with thermoelectric power sources, DOE is unaware of an 

external device that has an impact on energy efficiency whose power demands are low enough to 

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allow it to be powered by such generators. DOE is also unaware of any thermophotovoltaic 

power generators that have been developed to the point where they could be incorporated by the 

compliance date of the rulemaking, nor of any role that such generators would play in increasing 

the energy efficiency of gas-fired storage water heaters. 

Rheem commented that DOE should recognize the special utility of self-powered water 

heaters. (Rheem, No. 49 at p. 4) DOE acknowledges that most gas-fired storage-water heaters on 

the market today do not require an electrical connection to operate (i.e., they are self-powered). 

Typically, the gas valves on these units incorporate a thermoelectric element that is impinged on 

by a standing pilot flame. The minute power generated by the thermoelectric element opens the 

gas supply in the valve assembly via a low-power solenoid. Thus, thermoelectric elements 

typically act as a safety device. They do not provide sufficient power to run fan blower motors 

and other high-powered devices. Therefore, DOE has tentatively decided to continue to exclude 

thermophotovoltaic and thermoelectric generators from its analysis, because they are not an 

effective means of improving the efficiency of water heaters. 

ACEEE also stated that DOE should revisit the preliminary conclusions presented in the 

screening analysis regarding flue dampers since electromechanical dampers were common on 

furnaces and boilers and appear to be available for residential boilers today. (ACEEE, No. 35 at 

pp. 3-4) DOE research suggests that there are no residential storage water heaters on the market 

today that incorporate such dampers. 

Although electromechanical dampers may be found on some furnaces, boilers, and 

commercial water heaters, their benefit in a residential water heater application is unknown 

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because no manufacturer incorporates them in their products. All products that incorporate 

electromechanical dampers of which DOE is aware require line power to operate them. Thus, 

such dampers may not be practicable for all consumers. Additionally, DOE researched damper 

systems that do not require electrical power to operate. Typically, such systems are based on a 

bi-metal damper installed on top of the flue pipe outlet that opens when heated and closes as it 

cools. DOE research suggests that such non-electrically-actuated dampers pose potential health 

and safety problems. For example, such dampers can fail in the closed position, which could 

cause the exhaust gases to be stuck in the flue. Furthermore, they rely on hot air impingement to 

open. However, when the water heater begins its combustion cycle, the flue and its baffles are 

relatively cold, and flue gas temperatures may require some time until they reach the point where 

they will open a bi-metal damper quickly and completely. This is especially true for flammable 

vapor ignition resistant (FVIR) water heaters (which all residential water heaters are) whose 

natural draft is already restricted by FVIR components. With the flue shut or mostly shut on 

start-up, water heater combustion can be impacted in a number of ways, including nuisance 

lockouts, increased carbon monoxide production, and flue gases spilling into living spaces. For 

these reasons, non-electromechanical dampers were screened out. 

ACEEE commented that DOE should revisit the preliminary conclusions presented in the 

screening analysis regarding advanced forms of insulation, which resulted in DOE’s tentative 

decision to screen out those technologies. (ACEEE, No. 35 at pp. 3-4) In response, DOE research 

suggests that emerging technologies such as vacuum-insulated-panels (VIPs) may allow 

manufacturers to reduce heat loss, but such technologies have yet to find application in storage 

water heaters. DOE notes that ACEEE did not provide any new rationale or data to support why 

DOE should reconsider its original conclusion presented in the preliminary screening analysis 

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that advanced forms of insulation have not been demonstrated as practical to manufacture and 

install. Hence, DOE screened out advanced forms of insulation from the NOPR analyses. 

ACEEE also stated that DOE should revisit its preliminary conclusions regarding sidearm 

heaters and two-phase thermosiphons (TPTS) which resulted in DOE’s tentative decision to 

screen out those technologies. (ACEEE, No. 35 at pp. 3-4) Regarding two-phase thermosiphons, 

ACEEE did not provide any explanation in its comment as to why DOE should reconsider its 

initial conclusion that it is not practicable to manufacture, install, and service this technology on 

the scale necessary to serve the relevant market at the time compliance with the standard is 

required. TPTSs require a drastic redesign of the water heater and are typically not practical for 

indoor installation. Therefore, DOE has continued to screen out this technology. 

Regarding side-arm heaters, ACEEE commented that sidearm heaters are more feasible 

with access to 24-volt power, which would allow them to be located above or below the unit. 

This assertion does not address DOE’s concerns about sidearm heaters presented in the 

preliminary analysis. DOE research did not reveal any working prototypes for gas-fired or oilfired storage water heaters, and manufacturers seem to no longer use this technology. Therefore, 

this technology is not feasible and not practical to manufacture, install, and service side-arm 

storage water heaters on the scale necessary to serve the relevant market at the time of the 

compliance date of the standard, and was not considered further in the analysis. See chapter 4 of 

the NOPR TSD, Screening Analysis, for more details about DOE’s assessment of two-phase 

thermosiphons and sidearm heaters. 

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For the reasons listed above, DOE still believes that thermophotovoltaic and 

thermoelectric generators, side-arm heaters, and advanced forms of insulation are not 

technologically feasible and are impractical to manufacture, repair, and install; that two-phase 

thermosiphons are impractical to manufacture, repair, and install; and that buoyancy operated 

flue dampers have an adverse impact on the safety of these products. 

Bradford White Corporation (BWC) stated that using multiple flues for gas-fired storage 

water heaters is difficult, costly, and impractical to produce on residential water heater tank 

production lines. (BWC, No. 46 at p. 2) 

In response, DOE research suggests that multi-flue storage water heaters can be produced 

at a higher production scale than is commonly done now. The current low shipment-volume 

techniques are commonly used in commercial gas-fired and oil-fired water heater designs. 

Solutions for higher-volume production of such heaters would require significant investments 

but are not technically infeasible. Thus, DOE believes multiple flue designs could be 

implemented on residential storage water heaters and are a viable technology for improving the 

efficiency of oil-fired storage water heaters. 

In summary, none of the comments DOE received on the screening analysis led DOE to 

reconsider its determination for any of the technologies that were excluded from the preliminary 

analysis. Therefore, DOE excluded the same technologies in the NOPR analysis. Chapter 4 of 

the NOPR TSD provides more details about the technologies that DOE screened out. 

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2. Technologies Considered 

Based upon the totality of the available information, DOE has tentatively concluded that: 

(1) all of the efficiency levels discussed in today’s notice are technologically feasible; (2) 

products at these efficiency level could be manufactured, installed, and serviced on a scale 

needed to serve the relevant markets; (3) these efficiency levels would not force manufacturers to 

use technologies that would adversely affect product utility or availability; and (4) these 

efficiency levels would not adversely affect consumer health or safety. Thus, the efficiency 

levels that DOE analyzed and is discussing in this notice are all achievable through technology 

options “screened in” during the screening analysis. The technologies DOE considered are 

shown in Table IV.6 through Table IV.8. 

Table IV.6 Technologies DOE Considered for the Water Heater Engineering Analysis 

Technology Water Heater Type by Fuel Source 

Storage Instantaneous 

Gas-fired Electric Oil-fired Gas-fired 

Increased Jacket Insulation X X X 

Foam Insulation X 

Improve/Increased Heat Exchanger 

Surface Area 

X X X X 

Enhanced Flue Baffle X X 

Direct-Vent (Concentric Venting) X 

Power Vent X X X 

Electronic (or Interrupted) Ignition X X X 

Heat Pump Water Heater X 

Condensing X X X 

Table IV.7 Technologies DOE Considered for the Direct Heating Equipment Engineering 

Analysis 

Technology 

Increased Heat Exchanger Surface Area 

Direct-Vent (Concentric Venting) 

Electronic Ignition 

Induced Draft 

Two Stage and Modulating Operation 

Condensing 

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Table IV.8 Technologies DOE Considered for the Pool Heater Engineering Analysis 

Technology 

Increased Heat Exchanger Surface Area 

More Effective Insulation (Combustion Chamber) 

Power Venting 

Sealed Combustion 

Condensing 

3. Heat Pump Water Heaters Discussion 

For the preliminary analysis, DOE considered heat pump water heaters as a viable 

technology option for improving the efficiency of electric storage water heaters. DOE posted 

the preliminary TSD for residential heating products on its website on January 5, 2009 (for 

more information see 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/water_pool_heaters_ 

prelim_tsd.html). Pages 2-21 to 2-29 of chapter 2 of the preliminary TSD contain an 

extensive discussion of heat pump water heaters and the significant issues pertaining to the 

consideration of heat pump water heaters in this rulemaking. In the executive summary to 

the preliminary TSD, DOE sought comments on the viability of heat pump water heaters as 

a technology for electric storage water heaters and whether these water heaters would be 

practicable to manufacture, service, and install on a scale necessary to serve the relevant 

market by the compliance date of any amended standard, which would be five years after 

publication of the final rule. 

In addition, DOE sought comment on several other issues regarding integral heat pump 

water heaters: (1) whether manufacturers would be able to finance the investment costs 

necessary to convert their existing product lines to heat pump water heaters by the compliance 

date of an amended standard; (2) what percentage of manufacturers’ product lines would be 

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converted to heat pump water heaters by the compliance date of an amended standard (e.g., if 

standards did not reach the levels provided by heat pump water heaters); (3) how the market for 

heat pump water heaters has changed since the January 2001 final rule, and the number of 

installations that would incur a significant increase in cost due to extensive modifications that 

will have to be made to a residence to accommodate a heat pump water heater; and (4) heat 

pump water heater programs that have been conducted since the January 2001 final rule. 

In response to the preliminary analysis, DOE received a multitude of comments from 

interested parties, both at the public meeting and in written responses during the preliminary 

analysis comment period. A summary of the comments received and DOE’s responses are 

presented below. 

a. Consumer Utility 

Southern stated that DOE needs to address issues regarding cold air produced by heat 

pump water heaters. According to Southern, simply increasing a residence's heat output is not an 

appropriate way to compensate for the cold air a heat pump water heater generates. Southern also 

asserted that constantly blowing cold air will create uneven temperatures within the dwelling 

space, leading to utility and comfort issues. (Southern, Public Meeting Transcript, No. 34.4 at p. 

22) Southern noted that a heat pump water heater could provide supplemental cooling during a 

home's cooling hours; however, concentrated cooling at a particular location would result in 

uneven temperatures in a home, thereby being incompatible with the home's temperature needs. 

Southern stated that this would reduce the utility and performance of a home’s HVAC system, 

and that there is no practical solution. (Southern, No. 50 at p. 2) The commenter stated that an 

HVAC supply vent near the unit would not help mitigating cold air issues. Southern commented 

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that although a vent may cancel the effect of the cool air supplied in the winter (by supplying 

heat), during the cooling season, the supply vent (now supplying cool air) would exacerbate the 

temperature imbalance in the area of the heat pump water heater. (Southern, No. 50 at p. 2) 

DOE agrees with Southern that cold air production of heat pump water heaters should be 

considered in the analysis. While DOE believes most consumers would choose to increase the 

use of their space heating system to deal with the increased heating load, DOE did account for 

the possibility that some consumers would choose to install ductwork to vent cold air away from 

the space surrounding the water heater to the outdoors to overcome uneven temperature 

problems. The increased installation costs of venting cold air away from a conditioned space, 

along with the increased cost of space heating for consumers who choose not to vent cold air 

away from the conditioned space, are accounted for in DOE’s analysis for certain percentages of 

consumers (see section IV.E.2). 

Southern also commented on noise issues. Southern stated that is difficult to comment on 

a hypothetical product where no specifications exist, but that existing electric storage water 

heaters are often located in utility closets close to bedrooms and living areas. The commenter 

asserted that even if the product generates decibel levels similar to a refrigerator, such noise is a 

matter of greater concern because a heat pump water heater would tend to be in closer proximity 

to a bedroom or other quiet living area, as compared to a refrigerator located in a kitchen. Noise 

dampening would not be practical because louvered doors would be required to allow adequate 

air flow for the heat pump water heater. Southern cited the EPCA criteria, stating that there 

would be a significant impact on the utility or performance of the appliance if excessive noise 

disturbs the consumer. (Southern, No. 50 at p. 2) 

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DOE does not agree that the additional noise from a compressor used for a heat pump 

water heater would affect consumer utility for two reasons. First, as Southern points out, noise 

from a heat pump water heater compressor may be comparable in decibel level to the noise 

created by a refrigerator compressor, which has not been found to adversely affect consumer 

utility. Second, while the actual impact of excess noise created by a compressor may vary greatly 

based on the location of the appliance installation, DOE does not have any reason to believe that 

water heaters are any more likely to be installed near a bedroom than a refrigerator. Water 

heaters are typically not installed in consumers’ bedrooms or living spaces, but instead are 

usually installed in garages, closets, basements, attics, or other locations away from the living 

space. Thus, DOE believes that noise created by a compressor would not significantly impact 

consumer utility. 

b. Production, Installation, and Servicing Issues 

DOE received numerous comments in response to the preliminary analysis on the 

practicality of manufacturing, installing, and servicing heat pump water heaters. 

Southern stated that it is difficult to determine whether heat pump water heaters would be 

practical to install and service and if they are reliable, because at the time Southern submitted 

this comment, there were no products on the market to compare against. (DOE notes several heat 

pump water heaters have recently become available on the market). Also, no product exists yet 

that could be mass produced and available in 2015 in response to a heat pump water heater 

energy efficiency standard. (Southern, Public Meeting Transcript, No. 34.4 at pp. 58-59) Further, 

Southern commented that installation of heat pump water heaters in new construction is still 

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problematic for multifamily housing, although the issues are less severe than in replacement 

installations. In multifamily housing, interior locations are preferred for mechanical systems, and 

perimeter locations (e.g., windows and balconies) are preferred for exterior exposures. Southern 

stated that a heat pump water heater could be installed in an interior, but the addition of supply 

and return vents to the outdoors would be expensive. Southern also stated that placing the heat 

pump water heater at a perimeter location is possible, but would reduce the architectural options 

available for builders. (Southern, No. 50 at pp. 2-3) Finally, Southern commented that it is very 

concerned about the possible selection of an amended conservation standard at an efficiency 

level that would require heat pump water heaters. Southern strongly encourages the use of heat 

pump water heaters, but it argued that given operational differences, they are not suitable for 

some consumers due to the need for very expensive building modifications. (Southern, No. 50 at 

p. 1) 

BWC noted that the owner or installer can return a water heater to the manufacturer if a 

defect is claimed. BWC stated that in these cases, units are tested and typically there is no actual 

defect. According to BWC, if heat pump water heaters are introduced on a larger scale, it is 

likely that more water heaters will be returned to the manufacturer without servicing because 

many traditional plumbers (who would install the heat pump water heaters) have no HVAC 

training and no refrigerant licenses. (BWC, No. 46 at p. 2) BWC stated that training and 

education costs associated with heat pump water heaters were overlooked in the previous 

rulemaking and have been overlooked in the current rulemaking as well. (BWC, No. 46 at p. 2) 

GE stated that it will be producing a heat pump water heater sometime in the near future, 

and asserted that it is practical to manufacturer, install, and service heat pump water heaters. 

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Further, GE added that it has the facilities to both manufacture and service these products. It is 

GE’s opinion that there will be a great deal of consumer interest in such products, and that this 

market will increase and be much larger than the current market. (GE, Public Meeting 

Transcript, No. 34.4 at p. 63) 

In its written submission, GE also commented on the practicality of installation and 

service. GE stated that its heat pump water heater occupies the exact footprint of a standard 

water heater and requires the same electrical and plumbing connections. (GE, No. 51 at p. 2) 

According to GE, the vast majority of installations would be simple and straightforward, and 

consumers would achieve significant energy savings and often may obtain collateral installation 

benefits such as dehumidified basements or cooler attics. (GE, No. 51 at p. 2) GE argued that 

heat pump water heaters installed in humid locations could eliminate the need for a separate 

dehumidifier, which could save consumers both capital and energy. (GE, No. 51 at p. 2) GE 

acknowledged that a heat pump water heater produces a small amount of condensate. However, 

GE commented that this would not require any building modifications, as condensate is easily 

drained to a floor drain that should accompany each water heater for leakage or overflow. (GE, 

No. 51 at p. 2) Alternatively, GE commented that for heat pump water heaters that are not 

installed near a floor drain, a small condensate pump (similar to those used for HVAC 

installations) can be installed to pump condensate to a suitable drain. (GE, No. 51 at p. 2) GE did 

state that heat pump water heater installation in confined spaces with very small areas and no 

ventilation may present challenges. (GE, No. 51 at p. 2) 

Regarding the reliability issues surrounding heat pump water heaters, ACEEE stated that 

the historical record of failures for heat pump water heaters arises from the fact that initial 

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models were brought to market by laboratory-based applied research and development 

companies and commercial niche companies, rather than the major consumer appliance 

companies that are currently announcing heat pump water heater products. ACEE stated that an 

analysis which ignores the nature of the manufacturer is bound to misrepresent the potential of 

the heat pump water heater. (ACEEE, Public Meeting Transcript, No. 34.4 at pp. 65-66) NEEA 

and NPCC acknowledged the failure issues discussed in the preliminary analyses, but they 

argued that the failures have been attributable to the control boards, which other markets have 

experienced. NEEA and NPCC stated that the control board failures are not characteristic of the 

heat pump water heaters, but of the electronics industry itself, and replacement is a simple and 

inexpensive remedy. (NEEA and NPCC, No. 42 at p. 5) 

In response to the comments provided by Southern, BWC, GE, ACEEE, NEEA, and 

NPCC, DOE believes that heat pump water heaters could potentially be installed and serviced on 

the scale necessary for the residential market before the potential compliance date of an amended 

energy conservation standard for water heaters. Although servicing heat pump water heaters will 

require significantly more training than servicing traditional electric storage water heater 

technologies, DOE notes that many domestic appliances are being installed and repaired today 

which feature compressors (i.e., refrigerators, room air conditioners, and similar appliances). 

DOE believes that, given the 5-year delay between the issuance of the final rule and the 

compliance date and the fact that many manufacturers already have these products under 

development, it is unclear whether manufacturers would be able to retrain installers and service 

technicians to install and service heat pump water heater technology. DOE estimated the 

additional costs that would be incurred as a result of increased certification requirements to 

install and service heat pump water heaters in its analyses. See section IV.E.2 for details. 

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A.O. Smith asserted that heat pump water heaters are a viable technology to serve a 

portion of the water heater market, but that they are only practical for a small, niche part of the 

market and should never be considered when setting the "efficiency floor" of the electric water 

heater market. A.O. Smith argued that manufacturers could make the investment needed for the 

small volumes of heat pump water heaters that manufacturers believe are practical, but the cost 

of changing every line completely over to heat pump water heaters would be prohibitive. In 

addition, A.O. Smith stated that the percentage of heat pump water heaters to penetrate the 

market will be small and will be driven by market incentives such as tax credits and rebates. 

(A.O. Smith, No. 37 at p. 8) BWC stated that it could likely convert some of its product lines to 

heat pump water heaters by the compliance date of the standard. BWC also commented that 

without knowing the cost to retrofit current production lines and the cost of heat pump water 

heaters, it cannot comment on what percentage could be converted by the compliance date. 

(BWC, No. 46 at p. 1) Edison Electric Institute stated that heat pump water heaters are different 

from standard electric storage water heaters and cannot be considered for direct replacements 

due to technology, size, and other issues. EEI also stated its concern that industry would not be 

able to increase production from under 10,000 units per year to 4.5 million units per year by the 

compliance date of the standard. According to EEI, if DOE does not create a separate product 

class for heat pump water heaters, DOE should screen out this technology from this rulemaking. 

(EEI, No. 40 at p. 3) 

DOE acknowledges there could be issues with converting entire production lines to 

manufacture heat pump water heaters before the compliance date of this standard. However, 

DOE also notes that significant portions of heat pump water heaters are expected to remain very 

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similar in design to current standard electric storage water heaters. Manufacturers could choose 

to produce the heat pump portion of the water heater in-house or purchase it from a supplier. GE 

has already announced that a heat pump water heater will be available sometime this year, and 

other major manufacturers are also developing heat pump water heaters. Given the 5-year delay 

in compliance date from the issuance of the final rule, and the fact that many manufacturers are 

already developing heat pump water heaters, DOE believes manufacturers may be able to 

convert their entire product lines before the compliance date of an amended energy conservation 

standard. However, DOE also recognizes there would likely be significant impacts on 

manufacturers. DOE considers those impacts in the MIA section of this NOPR (section IV.H). 

DOE is seeking comment on the manufacturability of heat pump water heaters and the 

capability of manufacturers to ramp up production. DOE is specifically seeking comment on how 

long it would take, and how much it would cost, for manufacturers to convert all product lines to 

heat pump water heaters if it were required by an amended energy conservation standard. 

Additionally, DOE is seeking comment about the capability of water heater installers and 

servicers to meet the unique demands created by heat pump water heaters. DOE is requesting 

comment about how long it would take to train installers and servicers to be able to serve the 

market created if heat pump water heaters were required by an amended energy conservation 

standard. DOE will consider all of these factors as it weighs the benefits and burdens of each 

TSL. (See Issue 11 under “Issues on Which DOE Seeks Comment” in section VII.E of this 

NOPR.) 

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c. General Comments 

DOE received several general comments about the current condition of heat pump water 

heater technology and the market for this product. These comments are discussed immediately 

below. 

Southern commented that, although not desirable, it would be less objectionable to 

require heat pump water heaters if the electric storage water heater class could be split at 40 

gallons, with products larger than 40 gallons having a heat pump water heater efficiency level 

requirement, and products smaller than 40 gallons having a higher electric resistance efficiency 

level. (Southern, No. 50 at p. 4) 

EEI stated that there is a Federal tax credit for heat pump water heaters. (EEI, Public 

Meeting Transcript, No. 34.4 at p. 60) AHRI stated that the ENERGY STAR program has been 

established since the previous rulemaking, creating greater recognition by all interested parties 

about the need to save energy. AHRI commented that every manufacturer is probably 

investigating whether it can maintain a feasible business providing heat pump water heaters. 

However, AHRI also commented that DOE should not consider heat pump water heaters as an 

energy conservation standard for 2015. According to the commenter, the water heater industry 

and American consumers are experiencing difficult economic conditions, and consumers are not 

likely to purchase heat pump water heaters that are expensive. AHRI also stated that resistancetype electric storage water heaters are near their maximum efficiencies and need to evolve. 

AHRI commented that current conditions prohibit setting an efficiency minimum that would 

require a heat pump water heater. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 60-62) 

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AHRI stated that current market conditions and the introduction of heat pump water 

heater models by water heater manufacturers are allowing heat pump water heaters to take root 

in the market. Further, AHRI asserted that the heat pump water heater market needs to mature 

and that DOE should allow the market and consumers to respond to the availability of highertechnology electric storage water heaters that are reliable and meet consumer utility needs. 

(AHRI, Public Meeting Transcript, No. 34.4 at pp. 64-65) 

ACEEE stated that ENERGY STAR's water heater program demonstrates that heat pump 

water heaters are viable. The commenter stated that three major manufacturers have announced 

or told ACEEE about a qualifying heat pump water heater to be marketed to consumers in 2009, 

which is more than 5 years before energy conservation standard would take effect. (ACEEE, No. 

35 at pp. 4-5) ACEEE asserted that cost-effectiveness should be examined because profits are 

likely to be greater for more expensive heat pump water heaters, even in a very competitive 

market, and that these higher cost products may benefit the industry in the current economic 

conditions. According to ACEEE, consumer preference can be very strong, and market studies 

show that consumers have a very sophisticated understanding of the benefits of very expensive 

heat pump water heaters. ACEEE noted that consumer preference has been seen for gascondensing furnaces and other high-priced products in other markets that are considered 

commodity markets. (ACEEE, Public Meeting Transcript, No. 34.4 at p. 66) 

PG&E, SDGE, and SoCal Gas supported DOE's decision to include integral heat pump 

water heaters as a max-tech efficiency level for electric storage water heaters. PG&E, SDGE, 

and SoCal Gas believe the heat pump water heater technology has made important advances in 

recent years and pointed to the actions of General Electric as a major manufacturer speaking to 

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the viability of this technology. (PG&E, No. 38 at p. 2) NEEA and NPCC also agreed with the 

inclusion of heat pump water heaters in the rulemaking analyses, while acknowledging the 

failures issues discussed in the preliminary analyses. (NEEA and NPCC, No. 42 at p. 5) The 

American Gas Association (AGA) commented that there appear to be no significant barriers to 

including heat pump water heaters in the design options under consideration for electric storage 

water heaters. (AGA, No. 44 at p. 2) 

GE commented that heat pump water heaters have significant potential for increasing the 

energy efficiency of electric storage water heaters, but that shipments are currently very low (0.1 

percent of all water heaters shipped). According to GE, heat pump water heaters should be 

encouraged through ENERGY STAR and other consumer incentives to allow time for heat pump 

water heaters to penetrate the market and prove themselves in terms of energy cost savings and 

reliability. GE stated that the heat pump water heater market is too new to consider establishing a 

minimum standard at a level that would require heat pump water heater technology at this time. 

(GE, No. 51 at pp. 1-2) Southern also commented that levels requiring heat pump water heater 

technology are not appropriate as an amended energy conservation standard level at this time. 

(Southern, No. 50 at p. 4) 

DOE believes that the ENERGY STAR program and Federal tax credit program, along 

with recent developments in heat pump water heater technology due to manufacturers’ efforts, 

have made heat pump water heaters a much more viable technology for improving energy 

efficiency. As such, DOE is tentatively proposing to consider heat pump water heaters in this 

analysis as a design option for improving the efficiency of conventional electric storage water 

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heaters. DOE considers the possibility of fuel switching resulting from heat pump water heater 

standards for electric storage water heaters in its shipments analysis (see section IV.F.1). 

The technologies evaluated in the screening analysis all have been used or are in use in 

commercially-available products, or exist in working prototypes. These technologies all 

incorporate materials and components that are commercially available in today’s supply markets 

for the products covered by this NOPR. Therefore, DOE believes all of the efficiency levels 

evaluated in this notice are technologically feasible. 

C. Engineering Analysis 

The engineering analysis develops cost-efficiency relationships to show the 

manufacturing costs of achieving increased efficiency. DOE has identified the following three 

methodologies to generate the manufacturing costs needed for the engineering analysis: (1) the 

design-option approach, which provides the incremental costs of adding to a baseline model 

design options that will improve its efficiency; (2) the efficiency-level approach, which provides 

the relative costs of achieving increases in energy efficiency levels, without regard to the 

particular design options used to achieve such increases; and (3) the cost-assessment (or reverseengineering) approach, which provides “bottom-up” manufacturing cost assessments for 

achieving various levels of increased efficiency, based on detailed data as to costs for parts and 

material, labor, shipping/packaging, and investment for models that operate at particular 

efficiency levels. 

For the preliminary analysis, DOE conducted the engineering analysis using both the 

efficiency level approach to identify incremental improvements in efficiency for each product 

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and the cost-assessment approach to develop a cost for each efficiency level. DOE identified the 

most common residential heating products on the market and determined their corresponding 

efficiency levels, the component specifications, and the distinguishing technology features 

associated with those levels. After identifying the most common products that represent a cross 

section of the market, DOE gathered additional information using reverse-engineering 

methodologies; product information from manufacturer catalogs; and discussions with 

manufacturers and other experts of water heaters, DHE, and pool heaters. This approach 

provided useful information, including identification of potential technology paths manufacturers 

use to increase energy efficiency. 

DOE generated a bill of materials (BOM) by disassembling multiple manufacturers’ 

products that span a range of efficiency levels for each of the three product categories. The 

BOMs describe the product in detail, including all manufacturing steps required to make and/or 

assemble each part. Subsequently, DOE developed a cost model that converted the BOMs and 

efficiency levels into manufacturer production costs (MPCs). By applying derived manufacturer 

markups to the MPCs, DOE calculated the manufacturer selling prices and constructed industry 

cost-efficiency curves. 

DOE received several comments from interested parties on the approach to the 

engineering analysis. Rheem stated its support for DOE's product teardown plan and evaluation 

of insulations levels. (Rheem, No. 49 at p. 4) Southern agreed overall with the technical and 

engineering assumptions in the TSD. (Southern, No. 50 at p.1) 

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Because DOE did not receive any comments from interested parties opposing its general 

approach to the engineering analysis, DOE continued to use the same approach for the NOPR 

phase of this rulemaking. However, DOE did receive specific comments from interested parties 

on certain aspects of the engineering analysis. A brief overview of the methodology, a discussion 

of the comments DOE received, DOE’s response to those comments, and any adjustments DOE 

made to the engineering analysis methodology or assumptions as a result of those comments is 

presented in the sections below. See chapter 5 of the NOPR TSD for additional details about the 

engineering analysis. 

1. Representative Products for Analysis 

For the engineering analysis, DOE reviewed all of the product classes of residential water 

heaters (storage-type and instantaneous), DHE, and pool heaters. Since the storage volume and 

input capacity affect the energy efficiency of residential heating products, DOE examined each 

product type separately. Within each product type, DOE chose units for analysis that represent a 

cross section of the residential heating products market. The analysis of these representative 

products and product classes allowed DOE to identify specific characteristics that could be 

applied to all of the products across a range of storage and input capacities, as appropriate. 

a. Water Heaters 

For residential, storage-type water heaters, the volume of the tank significantly affects the 

amount of energy consumed, because it takes more energy to heat a larger volume of water from 

a given temperature to a higher temperature than it does to do the same for a smaller volume of 

water. Also, an increase in the tank volume can create an increase in the tank surface area, 

leading to higher standby losses of two otherwise identical tanks (i.e., same insulation thickness, 

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same materials). For the preliminary analysis, DOE examined specific storage volumes for gasfired, oil-fired, and electric storage water heaters (referred to as representative storage volumes 

and shown in Table IV.9) because the energy efficiency equations for residential water heaters 

established by EPCA are a function of each products’ storage volume. DOE reviewed the 

shipments data AHRI provided to determine the storage volume corresponding to the highest 

number of shipments for gas-fired water heaters, oil-fired water heaters, and electric water 

heaters. DOE conducted a similar review of shipment data for instantaneous gas-fired water 

heaters and determined the input rating corresponding to the highest number of shipments (i.e., 

199,000 Btu/h, as shown in Table IV.9) since storage volume does not vary for this product 

class. 

DOE did not receive any comments in response to the preliminary analysis on the 

representative units for residential water heaters, and as such, used the same approach to 

determining representative units for the NOPR analysis. However, on review of the shipments 

for oil-fired storage water heaters for the NOPR analysis, DOE determined that oil-fired storage 

water heaters with 32 gallons of storage volume have a higher number of shipments than those 

with 30 gallons, and adjusted the representative unit accordingly. 

Table IV.9 Representative Residential Water Heaters Analyzed 

Residential Water Heater Class Representative Storage Volume 

(gallons) 

Gas-Fired Storage Type 40 

Electric Storage Type 50 

Oil-fired Storage Type 32 

Instantaneous Gas Fired 0 

(199,000 Btu/h input capacity) 

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Once DOE conducted the primary analysis on the representative rated storage volumes 

for each of the product classes, DOE extended the analysis to other rated storage volumes using 

the cost model and the energy efficiency equations. See section IV.C.7 for additional details. For 

gas-fired instantaneous water heaters, DOE used the analysis for the 199 kBtu/h input capacity 

and applied it to all products within the product class. 

b. Direct Heating Equipment 

Current energy conservation standards for DHE are not determined by an equation, but 

by input capacity ranges. DOE examined one specific input capacity range for gas wall fan, gas 

wall gravity, gas floor, and gas room DHE in the preliminary analysis. In addition, DOE 

examined one specific input capacity range for gas hearth DHE in the NOPR analysis. The 

specific input ranges DOE analyzed are referred to as representative input rating ranges. DOE 

reviewed the DHE (including vented hearth products) shipment data AHRI and HPBA provided 

for this rulemaking and found the input rating range corresponding to the highest number of 

shipments for gas wall fan, gas wall gravity, gas floor, and gas room DHE. DOE did not receive 

any comments from interested parties in response to the preliminary analysis on the 

representative ranges for traditional DHE, and used the same approach to determine the ranges 

for the NOPR analysis. DOE did not receive shipments data categorized by capacity ranges for 

gas hearth DHE, and, therefore, determined the representative capacity range based on the 

number of models available on the market in each capacity range. DOE added a representative 

range for gas hearth DHE for the NOPR analysis. In addition, after reorganizing the DHE 

product classes, DOE reviewed gas room DHE shipments for the NOPR, and changed the 

representative input range for gas room DHE from over 46,000 Btu/h to between 27,000 and 

46,000 Btu/h. DOE found the input range between 27,000 and 46,000 Btu/h contained the 

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highest number of models for gas room DHE when the gas hearth DHE were removed from 

consideration. Table IV.10 presents the representative rated input rating ranges for residential 

DHE. For the remaining DHE product classes (i.e., wall fan, wall gravity, and floor), DOE did 

not receive any comments in response to the preliminary analysis on the representative units, 

and, therefore, used the same units for the NOPR analysis. 

Table IV.10 Representative Residential Direct Heating Equipment Products as Described 

by Input Capacity and Defined by Btu/h 

Direct Heating Equipment Design Type Representative Input Rating Range (Btu/h) 

Gas Wall Fan Over 42,000 

Gas Wall Gravity Over 27,000 and up to 46,000 

Gas Floor Over 37,000 

Gas Room Over 27,000 and up to 46,000 

Gas Hearth Over 27,000 and up to 46,000 

After analyzing the representative product class (i.e., input rating range), DOE applied 

the analysis to the remaining product classes for each residential DHE type. Unlike storage water 

heaters, an equation is not applied to relate the range of input ratings. Instead, DOE proposes to 

maintain the AFUE difference between each input rating range as established by EPCA. That is, 

if the amended energy conservation standard is increased by two AFUE percentage points for the 

representative product class, for example, the amended energy conservation standards for the 

other product classes within this product type would all rise by two AFUE percentage points. 

The stringency resulting from an amended standard is constant across the range of inputs for a 

given product type. This approach appears to be consistent with the relationship between input 

capacity and efficiency exhibited by models currently available on the market based on DOE’s 

review of the AHRI directory for DHE. In addition, DOE notes that the larger DHE units usually 

contain larger heat exchangers to get higher efficiencies. These larger heat exchangers have 

increased surface area, which also increases the convected losses to the surroundings. The 

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increased losses result in lower AFUEs. Based on the market assessment and engineering 

principles, DOE believes the approach for maintaining the AFUE difference between each input 

rating range is reasonable. 

c. Pool Heaters 

There is only one product class for residential gas-fired pool heaters, but this product 

class covers a wide range of input ratings. Although within the same product class, the variation 

in input rating is large enough to create variations in pool heater design (e.g., large variations in 

input will vary material usage and MPC). Therefore, for the preliminary analysis, DOE reviewed 

the shipment data from AHRI and found the input rating corresponding to the highest number of 

shipments, which was 250,000 Btu/h input rating. Because DOE did not receive any comments 

on the representative input rating in the preliminary analysis, DOE used the same approach for 

the NOPR analysis. Consequently, DOE used 250,000 Btu/h as the representative input rating for 

residential pool heaters in the NOPR analysis. 

The engineering analysis results for the representative product classes are used in the 

remaining DOE analyses, including the life-cycle cost analysis and the national impact analysis. 

2. Ultra-Low NOX Gas-Fired Storage Water Heaters 

In the preliminary analysis, DOE did not address ultra-low NOX gas-fired storage water 

heaters separately from gas-fired storage water heaters with standard burners (i.e., non-ultra-low 

NOX burner). DOE developed a single cost-efficiency curve for all gas-fired storage water 

heaters. However, DOE received several comments in response to the preliminary analysis on 

the cost of ultra-low NOX gas-fired storage water heaters. As discussed in section IV.A.3.a 

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above, several local air quality management districts (mostly in California) limit the allowable 

NOX emissions from residential water heaters. 

BWC commented that there is a substantial cost increase to comply with the ultra-low 

NOX requirements. (BWC, No. 46 at p.1) Rheem commented that the MPC and MSP did not 

capture higher costs and prices associated with models that comply with ultra-low NOX 

requirements. (Rheem, No. 49 at pp. 4, 7) Rheem stated that although DOE included the costs 

associated with Flammable Vapor Ignition Resistant (FVIR) technology, DOE did not, but 

should have, included the costs associated with ultra-low NOX emissions requirements in its 

analysis. Further, Rheem stated that given the continued adoption of ultra-low NOX requirements 

in highly-populated regions such as California and Texas, DOE should revise its baseline cost 

estimates and include weighting for the population subject to ultra-low NOX regulations. 

(Rheem, No. 49 at p. 7) 

A.O. Smith stated that the types of burners currently used to comply with the ultra-low 

NOX requirements in an atmospheric water heater are much more restrictive (i.e., produce higher 

pressure drops) than conventional burners. According to the commenter, since gas-fired storage 

water heaters complying with the ultra-low NOX requirements also must comply with FVIR 

requirements, the units must also have flame arrestors on the air inlet, which further restricts the 

system. To boost the efficiency of ultra-low NOX gas-fired storage water heaters, manufacturers 

typically make the flue baffle more effective. In certain instances, given these additional 

restrictions, the only way for some of these units to continue to meet the energy conservation 

standards is to add a blower and/or power burner to the heater, which would greatly increase the 

manufacturing and installation costs. (A.O. Smith, No. 37 at p. 9) SoCal Gas agreed with the 

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storage manufacturers, stating that ultra-low NOX requirements similar to those in the Southern 

California Air Quality Management District are being implemented in other regions. SoCal Gas 

stated that ultra-low NOX requirements necessitate a different type of product, which creates a 

cost issue because product costs and cost increases are dramatically higher. (SoCal Gas, Public 

Meeting Transcript, No. 34.4 at pp. 41-42) 

In response to the comments on the preliminary analysis, DOE developed a separate 

analysis for ultra-low NOX gas-fired storage water heaters. DOE developed cost-efficiency 

curves for ultra-low NOX gas-fired storage water heaters by performing a teardown analysis 

(section IV.C.4.a) of several ultra-low NOX products from a variety of manufacturers at several 

efficiency levels. More specifically, DOE analyzed ultra-low NOX gas-fired storage water 

heaters at a 40-gallon representative storage volume, as was done for gas-fired storage water 

heaters with a standard burner. DOE then compared the ultra-low NOX gas-fired storage water 

heaters to the comparable gas-fired storage water heaters that use standard burner technology 

(i.e., not ultra-low NOX compliant). DOE also considered the impact of ultra-low NOX 

regulations for the cumulative regulatory burden (see section V.B.2.f). 

DOE used the cost-efficiency curves for ultra-low NOX gas-fired storage water heaters in 

the downstream analysis, including the LCC. DOE distributed the costs based on those 

geographical areas with ultra-low NOX regulations. See chapter 5 of the NOPR TSD for the costefficiency curves for ultra-low NOX gas-fired storage water heaters. 

3. Efficiency Levels Analyzed 

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For each of the representative products, DOE analyzed multiple efficiency levels and 

estimated manufacturer production costs at each efficiency level. The following subsections 

provide a description of the full efficiency level range DOE analyzed from the baseline 

efficiency level to the maximum technologically feasible (max-tech) efficiency level for each 

product class. In some cases, the highest efficiency level was identified through review of 

available product literature or prototypes for products not commercially available. 

For each product class, DOE selected baseline units as reference points, against which 

DOE measured changes resulting from potential amended energy conservation standards. 

Generally, the baseline unit in each product class: (1) represents the basic characteristics of 

equipment in that class; (2) just meets current Federal energy conservation standards; and (3) 

provides basic consumer utility. 

DOE conducted a survey of the residential heating products market to determine what 

types of products are available to consumers and to identify the efficiency levels corresponding 

to the highest number of models. Then, DOE established intermediate energy efficiency levels 

for each of the product classes that are representative of efficiencies that are typically available 

on the market or correspond to voluntary program targets such as ENERGY STAR. DOE 

reviewed AHRI’s product certification directory, manufacturer catalogs, and other publiclyavailable literature to determine which efficiency levels are the most prevalent for each 

representative product class. 

DOE determined the maximum improvement in energy efficiency that is technologically 

feasible (max-tech) for water heaters, DHE, and pool heaters, as required by section 325(o) of 

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EPCA. (42 U.S.C. 6295(o)). For the representative product within a given product class, DOE 

could not identify any working products or prototypes at higher efficiency levels that were 

currently available beyond the identified max-tech level at the time the analysis was performed. 

DOE seeks comment on its max-tech efficiency levels. 

Rheem commented generally in response to the preliminary analysis about the water 

heater max-tech levels DOE identified. Rheem asserted that there is little to no presence of maxtech water heating products in the United States. Further, Rheem commented that it supports the 

growth of max-tech products through ENERGY STAR, which helps to distinguish topperforming products and to stimulate market transformation, but the commenter stated that maxtech should not be considered for a federal minimum standard. (Rheem, No. 49 at p. 2) 

NRDC commented that max-tech levels face issues that are similar for all emerging 

technologies. It noted that: (1) max-tech products are only produced and deployed on small 

scales, thereby limiting available data; (2) reliability is a concern, possibly due to small scale 

production; (3) costs are high but projected to decrease as production increases, although timing 

is unknown; (4) consumer reaction to new technologies and their amenities is unknown; and (5) 

units are more useful only in certain applications due to size, venting, or other inherent attributes. 

NRDC notes that DOE must consider all of these concerns when making a decision. (NRDC, No. 

48 at pp. 1-2) 

As stated above, EPCA requires DOE to determine the maximum improvement in energy 

efficiency or maximum reduction in energy use that is technologically feasible for each class of 

covered products. (42 U.S.C. 6295(o)). Therefore, DOE must consider and include an analysis of 

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max-tech levels for residential heating products in this rulemaking. However, DOE notes that 

consideration of the max-tech level does not necessarily mean that it will be adopted as the level 

in the energy conservation standard for that product, because DOE must consider, in turn, all of 

the other statutory factors under 42 U.S.C. 6295(o). 

In addition to identifying efficiency levels for each product class, DOE identified a 

particular technology or combination of technologies associated with each efficiency level in 

order to make the engineering analysis more transparent to interested parties. For each efficiency 

level, DOE lists technology and design changes manufacturers could use to improve product 

energy efficiency to achieve the given efficiency level. These technologies provide methods to 

increase product energy and are representative of technologies found in a typical model at a 

given efficiency level. While DOE recognizes that manufacturers use many different 

technologies and approaches to increase the energy efficiency of residential heating products, the 

presented technologies and combinations of technologies and their ordering are simply possible 

paths manufacturers could use to reach higher efficiency levels. 

a. Water Heaters 

The current Federal minimum energy conservation standards define the baseline 

efficiencies for residential water heaters as measured by the energy factor. These standards 

became effective on January 20, 2004. (10 CFR Part 430.32(d)) For water heaters, DOE applied 

the representative storage capacity to the energy efficiency equations in 10 CFR Part 430.32(d) 

to calculate the EFs of the baseline units. 

i. Gas-Fired Storage Water Heaters 

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As described in section IV.C.2, DOE performed a separate analysis for gas-fired water 

heaters with a standard burner and gas-fired water heaters with an ultra-low NOX burner for this 

NOPR. Table IV.11 and Table IV.12 show the efficiency levels DOE considered for gas-fired 

storage water heaters, along with the technologies that manufacturers could use to achieve the 

listed efficiencies. The technologies for standard burner gas-fired water heaters and ultra-low 

NOX gas-fired water heaters vary due to differences in the operating characteristics of the 

burners. Ultra-low NOX burners typically reduce the pressure in the flue, which can create 

problems if the pressures required to properly vent combustion products are not maintained. To 

mitigate these problems, manufacturers may reduce the amount of baffling or other airflow 

restrictions to ensure proper venting, which in turn may result in decreased efficiency. To 

overcome these issues, manufacturers must use power venting technology to achieve energy 

factors that are comparable to what they would achieve with a standard burner gas-fired storage 

water heater that can contain more baffling. Therefore, the technologies associated with ultra-low 

NOX gas-fired water heaters are implemented at lower efficiency levels and yield a lower energy 

factor than the same technologies associated with gas-fired storage water heaters that use a 

standard burner. 

Table IV.11 Forty-Gallon Gas-Fired Storage Water Heater, Standard Burner 

Efficiency Level (EF) Technology 

Baseline (EF = 0.59) Standing Pilot and 1” Insulation 

Efficiency Level 1 (EF = 0.62) Standing Pilot and 1.5” Insulation 

Efficiency Level 2 (EF = 0.63) Standing Pilot and 2.0” Insulation 

Efficiency Level 3 (EF = 0.64) Electronic Ignition, Power Vent and 1” 

Insulation 

Efficiency Level 4 (EF = 0.65) Electronic Ignition, Power Vent and 1.5” 

Insulation 

Efficiency Level 5 (EF = 0.67) Electronic Ignition, Power Vent and 2” 

Insulation 

Efficiency Level 6 – Max-Tech (EF = 0.80) Condensing, Power Vent, 2” Insulation 

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Table IV.12 Forty-Gallon Gas-Fired Storage Water Heater, Ultra-low NOX Burner 

Efficiency Level (EF) Technology 

Baseline (EF = 0.59) Standing Pilot and 1” Insulation 

Efficiency Level 1 (EF = 0.62) Standing Pilot and 2” Insulation 

Efficiency Level 2 (EF = 0.63) Electronic Ignition, Power Vent, and 1” 

Insulation 

Efficiency Level 3 (EF = 0.64) Electronic Ignition, Power Vent and 1.5” 

Insulation 

Efficiency Level 4 (EF = 0.65) Electronic Ignition, Power Vent and 2” 

Insulation 

Efficiency Level 5 (EF = 0.67) Not Attainable (would go to condensing) 

Efficiency Level 6 – Max-Tech (EF = 0.80) Condensing, Power Vent, 2” Insulation 

DOE found gas-fired storage water heaters capable of condensing operations at the 

highest efficiency level (i.e., max-tech). More energy can be extracted by condensing the 

combustion products in the flue gas, which extracts more heat in the form of latent energy, 

leading to an increase in the thermal efficiency of the gas-fired storage water heater. In the 

preliminary analysis, DOE identified the max-tech EF for condensing gas-fired storage water 

heaters as 0.77. DOE received several comments from interested parties (discussed below) which 

have caused DOE to revise its estimate upwards to 0.80 EF for condensing units. 

NRDC stated that condensing gas-fired water heaters are the future of gas-fired storage 

water heaters. (NRDC, No. 48 at p. 1) ACEEE commented that the max-tech efficiency level 

DOE considered for gas-fired storage water heaters is lower than the ENERGY STAR level for 

the condensing storage water heater category, which is set at 0.80 EF. ACEEE stated that 

selecting 0.77 EF from a range of identified energy factors for condensing gas-fired storage 

water heaters ranging from 0.77 to 0.82 EF will bias the results of the analysis and that the five 

percentage points of the energy factor correspond to less gas usage. ACEEE expressed concern 

with such a divergence between ENERGY STAR and the energy conservation standards 

rulemaking. (ACEEE, Public Meeting Transcript, No. 34.4 at p. 75-76) Further, ACEEE 

recommended that DOE analyze efficiency levels at 0.77 EF, 0.80 EF, and 0.82 EF for gas-fired 

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storage water heaters (ACEEE, No. 35 at p. 3) ASAP stated that DOE’s analysis may be missing 

some efficiency levels. For gas-fired storage water heaters in particular, ASAP commented that 

condensing units may span a range of efficiencies, and a 0.77 EF may be an intermediate level 

that is not max-tech. (ASAP, Public Meeting Transcript, No. 34.4 at p. 92) 

A.O. Smith stated its support for the max-tech efficiency levels for water heaters as 

shown in the preliminary engineering analysis. Specifically, A.O. Smith supports a 0.77 EF for 

gas-fired condensing water heaters, which meets DOE's criteria of being technically feasible. 

(A.O. Smith, No. 37 at p. 3) 

In selecting the efficiency level for the max-tech condensing gas-fired water heater for 

the NOPR analysis, DOE carefully considered all comments from interested parties regarding 

this issue. There are no products currently available on the residential gas-fired storage water 

heater market that can achieve the efficiencies that will be made possible by condensing 

technology, and, therefore, it is difficult to determine the highest possible EF that can be 

achieved using this technology. Although condensing gas-fired storage water heaters are not 

currently available on the market in residential sizes, they are available in commercial sizes that 

could be scaled down for residential use. Commercial condensing gas-fired storage water heaters 

have efficiencies of up to 96 percent thermal efficiency. There is no direct mathematical 

conversion that can be used to derive energy factor (the efficiency metric for residential water 

heaters) from thermal efficiency (the efficiency metric used for commercial water heaters). 

Therefore, in making the determination of a max-tech level for gas-fired storage water heaters, 

DOE considered feedback from interested parties, information gathered during manufacturer 

interviews, available reports and literature, and its own technical expertise. As a result, DOE has 

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revised the max-tech water heater efficiency to 0.80 EF for the NOPR analysis. This level is 

cited as the max-tech for condensing water heaters in several reports reviewed by DOE 

(described in more detail below), and DOE believes it is the maximum possible energy factor 

that can possibly be achieved by a gas-fired storage water heater at this time. DOE notes that 

A.O. Smith presentation given at the 2009 ACEEE Hot Water Forum identifies 0.80 EF as the 

maximum possible EF for residential condensing gas-fired water heaters. For more information 

visit www.aceee.org; the presentation is available at: 

www.aceee.org/conf/09whforum/PlenarySession1-AdamsPresentation.pdf. 

In addition, the Super Efficient Gas Water Heating Appliance Initiative (SEGWHAI) 

Final Project Report (April 2007) identified efficiency factors at 0.80 and above as achievable 

condensing efficiency levels for gas-fired storage water heaters, although these levels were based 

on theoretical modeling of gas-fired water heaters and have never been demonstrated in working 

prototypes. For more information, visit www.segwhai.org. A 0.80 EF level is also consistent 

with the max-tech level identified by ENERGY STAR in its determination of an appropriate 

efficiency level for gas-fired storage water heaters utilizing condensing technology. For more 

information, visit www.energystar.gov. As explained above, DOE seeks comment on the maxtech efficiency levels identified for the analyses, especially those for gas-fired water heaters. 

(See Issue 1 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.) 

DOE received several comments about the other efficiency levels and technologies 

identified for the preliminary analysis. 

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Southern commented on the technologies for efficiency level 3 for gas-fired storage water 

heaters, stating its belief that adding electronic ignition would not require manufacturers to use 

power vent systems. (Southern, Public Meeting Transcript, No. 34.4 at p. 87) 

DOE agrees with Southern’s comment, because an assessment of the current market 

demonstrates that gas-fired storage water heaters using electronic ignition systems do not always 

include power vent technologies. However, DOE believes many manufacturers that use power 

vent technologies to reach efficiency level 3, 4, and 5 also use electronic ignition systems since 

the fan already requires electricity. Therefore, DOE paired electronic ignition and power venting 

technologies with one inch of insulation as a potential approach to achieving efficiency level 3. 

DOE believes that manufacturers implement designs that have both electronic ignition and power 

vent technology at this efficiency level. At efficiency levels 1 and 2, DOE used standing pilot 

systems for gas-fired storage water heaters, which do not require line electricity. Even though 

efficiency level 3 and above for gas-fired storage water heaters would require consumers to have 

an external electrical connection, DOE has determined that consumers would continue to have 

other non-electrical alternatives such as other types of gas-fired water heaters (e.g., gas-fired 

instantaneous water heaters). 

ACEEE stated that DOE should include an efficiency level that considers flue and vent 

damper technologies instead of power vent technology. The commenter stated that this may not 

significantly affect the energy factor because the test procedure does not account for the value of 

entrained bypass air. ACEEE asserted that flue and vent dampers may have much lower costs 

than power vents and may have less entrained air. Further, ACEEE stated that flue and vent 

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dampers do not require exhaust temperatures to be reduced to a level that can be handled by PVC 

plastics. (ACEEE, Public Meeting Transcript, No. 34.4 at p. 88) 

DOE focused its analysis on technologies that would impact efficiency, as measured by 

the DOE test procedure. DOE discussed its consideration of damper technologies as part of the 

screening analysis in section IV.B.1.a. For the engineering analysis, DOE examined the most 

common methods used by manufacturers to improve energy factor, as determined using DOE’s 

test procedures specified in 10 CFR part 430, subpart B, appendix E. Through its reverseengineering analysis, and review of manufacturer literature, DOE found that manufacturers most 

often use power vent technology to achieve higher efficiency for gas-fired storage water heaters. 

Thus, DOE considered efficiency levels that are typically achieved using a power vent design in 

the NOPR analysis. 

Rheem commented that at the preliminary analysis efficiency level 5 (i.e., 0.66 EF), gasfired storage water heaters may require operation at and near condensing efficiency levels, which 

can be undesirable. (Rheem, No. 49 at p. 4) 

DOE notes that several manufacturers already manufacture water heaters at 0.66 EF, 

making gas-fired storage water heaters at 0.66 EF practical to manufacture, install, and service, 

and technologically feasible. DOE is unaware of any adverse impacts to either product utility or 

health and safety that would result from a water heater at 0.66 EF. DOE reviewed the market for 

gas-fired water heaters at 0.66 EF and 0.67 EF. DOE did not find any products currently on the 

market, which incorporate features to accommodate condensing operation. Therefore, DOE sees 

no reason to eliminate that efficiency level from consideration. However, DOE did revise 

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efficiency level 5 from 0.66 EF for the preliminary analysis to 0.67 EF for the NOPR analysis to 

maintain consistency with the ENERGY STAR Program. DOE notes there are also products 

currently offered with a 0.67 EF at the representative volume size. 

Rheem also stated that the technologies identified to increase energy efficiency for gasfired storage water heaters are appropriate. However, Rheem asserted that the insulation 

thicknesses that would be required to achieve efficiency levels 1, 2, and 3 are understated. 

Rheem commented that efficiency level 1 requires 2 to 2.5 inches of insulation, for example. 

(Rheem, No. 49 at p. 4) 

DOE research suggests that the tank thicknesses listed at various efficiency levels are 

consistent with products available on the market. DOE reviewed manufacturer literature, which 

typically includes information on energy factor and insulation thicknesses. For the preliminary 

analysis, DOE reverse-engineered several gas-fired water heaters to verify the technologies used 

to improve energy efficiency, including insulation thicknesses. Since the preliminary analysis, 

DOE also hired an independent testing facility to determine the EF of a representative sample of 

water heaters across multiple efficiency levels for the NOPR. These water heaters were 

subsequently disassembled to verify the technologies used to increase energy efficiency. In the 

end, DOE came to the same conclusions as in the preliminary analysis regarding insulation 

thicknesses. Therefore, DOE believes the results of its assessment of insulation thicknesses at 

various efficiency levels are accurate. 

Rheem also commented that baseline technologies for 40-gallon gas-fired storage water 

heaters do not apply uniformly for the entire range of rated storage volumes, and as such, DOE 

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should account for the additional manufacturing, installation, and shipping costs for larger size 

water heaters. (Rheem, No. 49 at p. 4) 

For the NOPR engineering analysis, DOE performed teardowns of models at multiple 

nominal capacities and noted any differences (including minor differences) that occurred. DOE 

used the knowledge gained from these teardowns when it extended the cost analysis to the other 

capacity (gallon) sizes. As part of its analysis, DOE accounted for additional installation costs 

and shipping costs of larger units (see sections IV.E.2.a and IV.C.4.f, respectively). 

ii. Electric Storage Water Heaters 

Table IV.13 shows the efficiency levels considered for electric storage water heaters, 

along with their corresponding potential technologies that could be used to achieve those levels. 

Table IV.13 Fifty-Gallon Electric Storage Water Heater 

Efficiency Level (EF) Technology 

Baseline (EF = 0.90) 1.5” Foam Insulation 

Efficiency Level 1 (EF = 0.91) 2” Foam Insulation 

Efficiency Level 2 (EF = 0.92) 2.25” Foam Insulation 

Efficiency Level 3 (EF = 0.93) 2.5” Foam Insulation 

Efficiency Level 4 (EF = 0.94) 3” Foam Insulation 

Efficiency Level 5 (EF = 0.95) 4” Foam Insulation 

Efficiency Level 6 (EF = 2.0) Heat Pump Water Heater 

Efficiency Level 7 – Max-Tech (EF = 2.2) Heat Pump Water Heater, More Efficient 

Compressor 

For electric storage water heaters, although no integrated heat pump water heaters were 

available on the market at the time the analysis was developed, such products had been 

developed and manufactured in the past, three models have been certified under the ENERGY 

STAR program, and others are currently under development by other water heater 

manufacturers. DOE found electric heat pump water heaters capable of obtaining EFs of 2.2 in 

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the preliminary analysis and retained this level as the max-tech level in the NOPR analysis. DOE 

received several comments on the efficiency levels and technologies presented in the preliminary 

analysis. 

NRDC commented that heat pump water heaters are the future of electric storage water 

heater technology. (NRDC, No. 48 at p. 1) ASAP stated that DOE may be missing some 

efficiency levels in its analysis. ASAP commented that an efficiency level between efficiency 

level 5 and the max-tech for electric storage water heaters may merit analysis, particularly if 

ENERGY STAR has a heat pump water heater at 2.0 EF. (ASAP, Public Meeting Transcript, No. 

34.4 at p. 92) Similarly, ACEEE recommended DOE analyze levels at 1.7 EF, 2.0 EF, and 2.2 

EF. (ACEEE, No. 35 at p. 3) Additionally, ACEEE stated that prior analyses have been 

conducted for heat pump water heaters at 2.5 EF, although further specifics were not provided. 

(ACEEE, Public Meeting Transcript, No. 34.4 at p. 94) BWC referred DOE to comments made 

during the previous residential water heater rulemaking on July 18, 1994. (BWC, No. 46 at p. 2) 

BWC asserted that the previous rulemaking stated a reasonable energy factor of 1.50, but that the 

current rulemaking does not. BWC stated its belief that 1.5 EF is still a reasonable EF for heat 

pump water heaters. (BWC, No. 46 at p. 2) 

In response to these comments, DOE revised the efficiency levels considered for electric 

storage water heaters to include an intermediate heat pump water heater efficiency level at 2.0 

EF for the NOPR analysis. This is not the max-tech level, but it does represent a significant 

change in technology and increase in efficiency over the traditional electric storage heater 

technology. This technology would also be easier for manufacturers to achieve than the max-tech 

2.2 EF. DOE notes this efficiency level also corresponds to the level set forth by the ENERGY 

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STAR program. DOE did not find any heat pump water heaters currently available or in the 

research stage with a 1.7 EF. In addition, DOE believes it is unlikely that manufacturers will 

offer products below the ENERGY STAR level, which is at 2.0 EF. Currently, there are also 

Federal tax credits for heat pump water heaters with an energy factor greater than or equal to 2.0 

EF. Additionally, DOE maintained 2.2 EF as the max-tech efficiency level. Although ACEEE 

commented that analysis has been performed on heat pump water heaters with EFs of up to 2.5, 

ACEEE did not indicate the source of this analysis, and DOE could not identify any heat pump 

water heaters at 2.5 EF through its research efforts. The highest EF obtained in prototype designs 

currently being developed is 2.2 EF. 

In response to the technology options presented in the preliminary analysis, AHRI stated 

that increasing the insulation on an electric storage water heater from 3 to 4 inches would not 

increase the energy factor of such magnitude by 0.01 EF point. AHRI does not believe that an 

increase in the energy factor would be seen using DOE’s test procedure when only the insulation 

thickness is increased and no other design changes are made to eliminate many of the thermal 

short circuits present in a water heater. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 90-91) 

Rheem also commented that DOE should recognize that there are diminishing returns for added 

foam insulation, adding that it is unclear how the efficiency levels for electric storage water 

heaters with 3 and 4 inches of insulation were evaluated to yield the proposed efficiency levels. 

(Rheem, No. 49 at p. 3) 

DOE research determined the technology options manufacturers typically use to improve 

product efficiency, and was based on multiple data sources including manufacturer literature, 

which usually includes information on energy factor and insulation thicknesses. DOE also 

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conducted a teardown analysis of electric storage water heaters for the preliminary analysis. For 

the NOPR analysis, DOE tested the EF of water heaters and then performed a teardown analysis 

on those water heaters across various EF ratings to confirm the technologies used for increasing 

efficiency. Although insulation thickness is not the only design change, DOE believes it is the 

driving factor in increasing the EF for electric storage water heaters, and, therefore, is listed as a 

commonly used technology option. For these reasons, DOE did not revise the technology options 

for EL4 and EL 5 for electric storage water heaters for the NOPR analysis. 

iii. Oil-Fired Storage Water Heaters 

Table IV.14 presents the efficiency levels DOE considered for oil-fired storage water 

heaters, along with the technology options that manufacturers could use to achieve the listed 

efficiency. 

Table IV.14 Thirty-Two-Gallon Oil-Fired Storage Water Heater with Burner Assembly 

Efficiency Level (EF) Technology 

Baseline (EF = 0.53) 1” Fiberglass Insulation 

Efficiency Level 1 (EF = 0.54) 1.5” Fiberglass Insulation 

Efficiency Level 2 (EF = 0.56) 2” Fiberglass Insulation 

Efficiency Level 3 (EF = 0.58) 2.5” Fiberglass Insulation 

Efficiency Level 4 (EF = 0.60) 2” Foam Insulation 

Efficiency Level 5 (EF = 0.62) 2.5” Foam Insulation 

Efficiency Level 6 (EF = 0.66) 1” Fiberglass Insulation, and Multi Flue 

Design 

Efficiency Level 7 – Max-Tech (EF = 0.68) 1” Foam Insulation, and Multi Flue Design 

The most efficient residential oil-fired storage water heater on the market has an EF of 

0.68 and includes electronic ignition, foam insulation, and enhanced flue baffles. DOE 

considered this efficiency level in the preliminary analysis and did not revise it for the NOPR 

analysis. However, DOE has determined that all oil-fired water heaters currently manufactured at 

the max-tech efficiency level incorporate a proprietary design. While DOE typically does not 

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consider proprietary designs in its analysis due to impacts on competition likely to result from 

setting a minimum standard an efficiency level that is only achievable using a proprietary design, 

the agency has determined through discussions with manufacturers and its own technical 

expertise that the max-tech level for oil-fired storage water heaters is achievable using alternative 

approaches that are not proprietary. Therefore, DOE included this efficiency level in the NOPR 

analysis. DOE believes manufacturers of oil-fired storage water heaters could achieve an EF of 

0.68 by using a multiple flue design consisting of several flues to increase the heat transfer area, 

instead of a single, central flue that is standard on nearly all residential gas-fired and oil-fired 

storage water heaters. DOE revised its cost analysis for a 0.66 EF and 0.68 EF to represent a 

non-proprietary, multiple flue design. 

DOE did not receive any comments in response to the preliminary analysis on the maxtech efficiency level or the other efficiency levels DOE considered for oil-fired storage water 

heaters. See chapter 5 of the NOPR TSD for more information about the efficiency levels DOE 

analyzed for oil-fired storage water heaters. 

iv. Gas-Fired Instantaneous Water Heaters 

Table IV.15 presents the efficiency levels DOE considered for gas-fired instantaneous 

water heaters, along with their corresponding potential technologies. 

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Table IV.15 Zero-Gallon Gas-Fired Instantaneous Water Heater, 199,000 Btu/h Input 

Capacity 

Efficiency Level (EF) Technology 

Baseline (EF = 0.62) Standing Pilot 

Efficiency Level 1 (EF = 0.69) Standing Pilot and Improved Heat Exchanger 

Area 

Efficiency Level 2 (EF = 0.78) Electronic Ignition And Improved Heat 

Exchanger 

Efficiency Level 3 (EF = 0.80) Electronic Ignition and Power Vent 

Efficiency Level 4 (EF = 0.82) Electronic Ignition, Power Vent, Improved Heat 

Exchanger Area 

Efficiency Level 5 (EF = 0.84) Electronic Ignition, Power Vent, and Improved 

Heat Exchanger Area 

Efficiency Level 6 (EF = 0.85) Electronic Ignition, Power Vent, Direct Vent, 

and Improved Heat Exchanger Area 

Efficiency Level 7 (EF = 0.92) Electronic Ignition, Power Vent, Direct Vent, 

Condensing 

Efficiency Level 8 – Max Tech (EF = 0.95) Electronic Ignition, Power Vent, Direct Vent, 

Condensing (Max-Tech) 

For the preliminary analysis, DOE identified a gas-fired instantaneous water heater 

capable of condensing with an EF of 0.92 as the max-tech level. DOE did not receive any 

comments on the max-tech gas-fired instantaneous water heaters. However, on reviewing the 

gas-fired instantaneous water heater market, DOE identified a new max-tech level at 0.95 EF for 

instantaneous gas-fired water heaters that use condensing technology. 

DOE received several comments on the potential technologies incorporated at each 

efficiency level for gas-fired instantaneous water heaters that were presented in its preliminary 

engineering analysis. For the preliminary analysis, DOE considered the baseline to be the current 

Federal minimum standard (i.e., 0.62 EF). Also, DOE did not incorporate the need to handle 

condensate into the installed cost estimates until products reached the 0.92 efficiency level for 

the preliminary analysis. 

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A.O. Smith suggested using a higher EF as the baseline efficiency level for gas-fired 

instantaneous water heaters. A.O. Smith noted that the vast majority of models available (per the 

AHRI Directory) are already well above the Federal minimum energy conservation standards of 

0.62 EF. Since the majority of shipments in the current market for tank-type water heaters are at 

the Federal minimum energy conservation standards, DOE should use the same logic in choosing 

the baseline efficiency levels. (A.O. Smith, No. 37 at p. 3) 

In response, DOE defines the baseline efficiency level as representative of the basic 

characteristics of equipment in that class. The characteristics of a gas-fired instantaneous water 

heater that just meets the 0.62 EF requirement would be representative of the most basic design 

that could be used for a gas-fired instantaneous water heater. Therefore, DOE did not change the 

baseline efficiency level for gas-fired instantaneous water heaters in the NOPR analysis. 

At the public meeting for the preliminary analysis, DOE sought comment on safety 

concerns for gas-fired instantaneous water heaters at near-condensing efficiency levels. 

Operating at near-condensing levels may result in corrosive condensation formation, which may 

occur when the combustion products (which include water vapor) cool and condense. 

Manufacturers stated during engineering interviews that there is a safety margin needed to 

account for variations due to manufacturing tolerances, gas quality, differences in venting 

configurations, altitude, ambient conditions, and installer experience. DOE specifically requested 

information about how manufacturers would change current designs to mitigate corrosive 

condensate formation at near-condensing EF levels that may be present in some installations. 

DOE also requested comment about how manufacturers would alter current designs of gas-fired 

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instantaneous water heaters to achieve safe operation if a potential amended standard required all 

installations to operate at near-condensing EF levels. 

In response, Noritz stated that 0.83 EF is generally the borderline between condensing 

and non-condensing, the point at which units begin operating in condensing mode in at least 

some applications. (Noritz, Public Meeting Transcript, No. 34.4 at p. 113) Noritz also stated that 

condensation may occur in the near condensing range, which includes 0.83, 0.84, and 0.85 EF, 

and that it would change the copper heat exchanger in its standard product to stainless steel or 

better to manage the acidic condensate. (Noritz, Public Meeting Transcript, No. 34.4 at pp. 108­

109) Noritz recommends that contractors install a condensate collector for instantaneous gasfired water heaters with energy factors at 0.82 and 0.83, but acknowledged that the condensate 

collector is not included in a large percentage of installations. Therefore, Noritz stated that it 

would include a stainless steel heat exchanger with the condensate collector on higher efficiency 

products because of the increased safety issues associated with condensate management. (Noritz, 

Public Meeting Transcript, No. 34.4 at pp.111-112) Further, Noritz said it would use this 

stainless steel heat exchanger nationwide for cost considerations and to keep the product 

standard. (Noritz, Public Meeting Transcript, No. 34.4 at pp. 109-110) Noritz commented that it 

handles acidic condensation with a stainless steel heat exchanger for the condensing 

instantaneous gas-fired water heater that has an energy factor of 0.92 EF, and that the product 

uses a primary copper heat exchanger and a secondary stainless steel heat exchanger. Noritz 

commented that some companies may use titanium, but this may not be realistic for Noritz 

because of the cost. (Noritz, Public Meeting Transcript, No. 34.4 at pp. 109-110) In written 

comments, Noritz suggested that DOE's cost-efficiency curve should be continuous from 0.62 to 

0.82, at which point there should be a kink in the curve, and the cost of producing a product with 

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an EF of 0.83 or higher would see a steep increase. According to the commenter, the delineation 

between condensing and non-condensing product gas-fired instantaneous water heaters is at an 

EF of 0.83, which is borderline. Noritz asserted that manufacturers making products with an EF 

of 0.83 or above would need to design these products to deal with condensate, thereby requiring 

more expensive heat exchanger materials, condensate drains, and some method of treating (i.e., 

neutralizing) the condensate for safe disposal. (Noritz, No. 36 at pp. 1-2) 

Similar to Noritz’s comments, AHRI noted that the costs of gas-fired instantaneous water 

heaters at near-condensing efficiency levels (i.e., an EF of 0.84 and 0.85) need to include the 

measures manufacturers would use to minimize problems associated with excessive condensate 

in the appliance or its venting system. Specifically, AHRI noted that manufacturers must build 

safety factors into their designs to address the wide scope of installation conditions, such as 

colder incoming water temperatures or various venting systems. AHRI recommended that DOE 

model the heat exchanger using more corrosive-resistant materials, specifying a venting system 

using stainless steel, and adding a means to collect and dispose of condensate. (AHRI, No. 43 at 

p. 2) Regarding manufacturing products that operate near their condensing levels, AHRI stated 

that manufacturers want to build products that can be sold anywhere in the United States. 

However, there are parts of the United States where the incoming water is colder than the water 

specified by the test procedure, and this may cause pre-condensing. AHRI asserted that 

efficiency levels at these levels create safety issues, and that manufacturers would have to rely on 

manufacturing and installation skills due to the small margin between condensing and noncondensing operation. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 110-111) 

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DOE acknowledges that for efficiency levels associated with near-condensing operation, 

a portion of the flue products may condense, and this percentage may vary as a function of field 

conditions. Additionally, operation where a portion of the flue gases condense (i.e., nearcondensing operation) creates the same safety issues associated with fully condensing operation 

because corrosive condensate is introduced into the heat exchanger and venting system during 

both types of operation. Therefore, DOE determined that for instantaneous gas-fired water heater 

efficiency levels 5 and 6 (energy factors 0.84 and 0.85, respectively), the costs associated with 

condensing operation should be accounted for in the MPCs. DOE revised its costs for the NOPR 

phase of this analysis for gas-fired instantaneous water heaters to account for design changes 

necessary to handle condensate at these efficiency levels. 

b. Direct Heating Equipment 

The baseline efficiencies for DHE are defined by the current Federal minimum energy 

conservation standards and the representative characteristics for products on the market that just 

meet Federal minimum energy conservation standards, as measured by the AFUE, and effective 

on January 1, 1990. (10 CFR part 430.32(i)) For DHE, the AFUEs corresponding to the 

representative input ratings in 10 CFR 430.32(i) were assigned as the baseline unit AFUEs. 

Table IV.16 through Table IV.20 show the efficiency levels DOE analyzed for each 

product class of DHE, along with technologies that manufacturers could use to reach that 

efficiency level. 

In the preliminary analysis, DOE identified various efficiency levels for gas wall fan 

DHE, including max-tech levels that used electronic ignition and induced draft combustion 

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systems. DOE did not receive any comments pertaining to its efficiency levels or technologies 

for the preliminary analysis. After reviewing the efficiency levels and technologies for the NOPR 

analysis, DOE determined that the same efficiency levels and technologies are still appropriate. 

Table IV.16 Gas Wall Fan-Type DHE, Over 42,000 Btu/h 

Efficiency Level (AFUE) Technology 

Baseline 

(AFUE = 74) 

Standing Pilot 

Efficiency Level 1 

(AFUE = 75) 

Intermittent Ignition and Two-Speed Blower 

Efficiency Level 2 

(AFUE = 76) 

Intermittent Ignition and Improved Heat Exchanger 

Efficiency Level 3 

(AFUE = 77) 

Intermittent Ignition, Two-Speed Blower, and Improved Heat 

Exchanger 

Efficiency Level 4 – Max-Tech (AFUE = 

80) 

Induced Draft and Electronic Ignition 

In the preliminary analysis, DOE identified gas wall gravity efficiency levels and 

technology options, which included a 75-percent AFUE level as the max-tech that could be 

achieved using induced draft. DOE received several comments in response. 

AHRI cautioned that adding too many electrical devices to gas wall gravity-type DHE 

will at some point remove those products from that product class, because they will get 

converted into gas wall fan-type DHE. (AHRI, Public Meeting Transcript, No. 34.4 at pp. 69-70) 

AHRI also stated that an external electrical supply is required at some of the higher efficiency 

levels. AHRI asserted that when this occurs, that product can no longer be classified as a gravitytype product, but instead would be a fan-type product. Therefore, AHRI stated that the efficiency 

levels presented in the preliminary analysis are unrealistic for gas wall gravity-type DHE. 

(AHRI, Public Meeting Transcript, No. 34.4 at pp. 114-115) Additionally, Bock commented that 

adding induced draft technology to a gas wall gravity-type unit would exclude it from this 

equipment class. (Bock, Public Meeting Transcript (No. 34.4 at p. 119) 

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In response to these comments, DOE further reviewed the gravity-type wall DHE market 

and the available products and technologies for the NOPR analyses. A “vented wall furnace” 

(i.e., gas wall fan-type or gravity-type DHE) is defined as a vented heater that furnishes heat air 

circulated either by gravity or by a fan. 10 CFR 430.2. Gravity-type and fan-type wall DHE are 

differentiated only by the inclusion (fan-type) or exclusion (gravity-type) of a fan from the 

design. DOE agrees with Bock that the addition of an induced draft fan (which forces the 

combustion products through the heat exchanger to increase turbulence and, thus, heat transfer) 

would cause those products to be excluded from the wall gravity product class. Thus, for the 

NOPR analysis, DOE removed the efficiency level at 75 AFUE that corresponded to induced 

draft technology. Instead, DOE identified 72 AFUE as the max-tech efficiency level, which can 

be attained using electronic ignition technology. 

Table IV.17 Gas Wall Gravity-Type DHE, Over 27,000 Btu/h and up to 46,000 Btu/h 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 66) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 2 (AFUE = 68) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 3 (AFUE = 71) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 4 – Max Tech (AFUE = 72) Electronic Ignition 

In the preliminary analysis, DOE analyzed several efficiency levels for gas floor DHE, 

ranging from 57 AFUE up to 75 AFUE. DOE chose these levels based on the product 

availability listings contained in manufacturer specification sheets and DOE’s previous analysis 

for direct heating equipment. However, for the NOPR, DOE conducted another review of the 

current market and determined that the market no longer offers models above 58 percent AFUE. 

This assessment was based on a review of updated information from AHRI Directory of 

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Certified Products and manufacturer specification sheets. In its review, DOE identified heat 

exchanger improvements as a potential design approach to achieve the max-tech level 58 AFUE. 

DOE could not find any prototypes being developed above 58 percent AFUE. Accordingly, DOE 

based the efficiency levels for the NOPR analyses on those levels known to be technologically 

feasible for this product class and DOE only analyzed the baseline and max-tech efficiency 

levels, because no products are available at any other efficiency levels (See Table IV.18.). 

Table IV.18 Gas Floor-Type DHE, Over 37,000 Btu/h 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 57) Standing Pilot 

Efficiency Level 1 – Max Tech 

(AFUE = 58) 

Standing Pilot and Improved Heat Exchanger 

In the preliminary analysis, DOE included gas hearth DHE in the analysis for gas room 

DHE. For the NOPR analysis, DOE is establishing a separate product class for gas hearth DHE. 

Consequently, DOE revised the efficiency levels analyzed for gas room DHE to represent the 

market and technologies available for products, excluding those that are now gas hearth DHE, 

based upon the characteristics of the fireplace and DOE’s proposed definition for “gas hearth 

DHE.” This resulted in the elimination of several efficiency levels that were considered in the 

preliminary analysis for gas room DHE. Also, the max-tech efficiency level has changed for the 

NOPR because of this restructuring of the DHE product classes. For room heaters, the use of 

electronic ignition and multiple heat exchangers has been identified as a possible approach to 

reach the max-tech efficiency level (AFUE = 83). These technologies are being used in room 

heaters that are currently on the market. 

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Table IV.19 Gas Room-Type DHE, Over 27,000 Btu/h and up to 46,000 Btu/h 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 65) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 2 (AFUE = 66) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 3 (AFUE = 67) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 4 (AFUE = 68) Standing Pilot and Improved Heat Exchanger 

Efficiency Level 5 – Max Tech (AFUE = 83) Electronic Ignition and Multiple Heat Exchanger 

Design 

DOE did not analyze a gas hearth DHE product class separately in the preliminary 

analysis. Based upon public comment, for the NOPR analysis, DOE surveyed the residential gas 

hearth DHE market to identify technologies and efficiency levels common to gas hearth DHE. 

For gas hearth DHE, DOE identified products capable of condensing operations and rated at 93 

AFUE as the max-tech level. 

Table IV.20 Gas Hearth DHE, Over 27,000 Btu/h and up to 46,000 Btu/h 

Efficiency Level (AFUE) Technology 

Baseline (AFUE = 64) Standing Pilot 

Efficiency Level 1 (AFUE = 67) Electronic Ignition 

Efficiency Level 2 (AFUE = 72) Fan Assisted 

Efficiency Level 3 – Max Tech (AFUE = 93) Condensing 

c. Pool Heaters 

The baseline efficiencies for pool heaters were defined by the current Federal minimum 

energy conservation standards and the representative characteristics for products on the market 

that just meet Federal minimum energy conservation standards, as measured by thermal 

efficiency and effective on January 1, 1990. (10 CFR 430.32(k)) For pool heaters, the thermal 

efficiency corresponding to the baseline unit is 78 percent. Id. 

DOE analyzed efficiency levels for pool heaters with standing pilot ignitions and pool 

heaters with electronic ignitions for the preliminary analysis. DOE distinguished between the 

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two ignition systems because of the energy use difference between electronic ignition and 

standing pilot systems. The DOE test procedure does not fully include the energy use by a 

standing pilot systems in the thermal efficiency metric, but DOE accounted for the energy use 

difference between electronic ignition and standing pilot systems in its consumer LCC analysis. 

DOE did not receive any comments in response to the preliminary analysis that opposed this 

approach, and, therefore, DOE continues to use it for the NOPR analysis. After surveying the 

pool heater market, DOE determined that electronic ignition is offered in products covering the 

whole range of efficiencies, while standing pilot ignition systems are only offered in products 

corresponding to the first three intermediate efficiency levels. Consequently, DOE developed 

two baseline products and two efficiency pathways for efficiency levels 1 through 3. 

For the NOPR analysis, DOE examined the same efficiency levels as it did in the 

preliminary analysis (see Table IV.21). 

Table IV.21 Gas-Fired Pool Heater, 250,000 Btu/h 

Efficiency Level (Thermal Efficiency) Technology 

Baseline (Thermal Efficiency = 78)* 

Efficiency Level 1 (Thermal Efficiency = 79)* Improved Heat Exchanger Design 

Efficiency Level 2 (Thermal Efficiency = 81)* Improved Heat Exchanger Design 

Efficiency Level 3 (Thermal Efficiency = 82)* Improved Heat Exchanger Design, More 

Effective Insulation (Combustion Chamber) 

Efficiency Level 4 (Thermal Efficiency = 83) Power Venting 

Efficiency Level 5 (Thermal Efficiency = 84) Power Venting, Improved Heat Exchanger 

Design 

Efficiency Level 6 (Thermal Efficiency = 86) Sealed Combustion, Improved Heat 

Exchanger Design 

Efficiency Level 7 (Thermal Efficiency = 90) Sealed Combustion, Condensing 

Efficiency Level 8 – Max-Tech 

(Thermal Efficiency = 95) 

Sealed Combustion, Condensing, Improved 

Heat Exchanger Design 

*Technologies incorporating either a standing pilot or electronic ignition. Efficiency Levels above 3 include 

electronic ignition. 

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In the executive summary to the preliminary TSD, DOE sought comments on design 

changes manufacturers might use to mitigate the formation of corrosive condensation at 86 

percent thermal efficiency for gas-fired pool heaters. DOE also sought comments on the changes 

manufacturers would make to the product design and the effects on MPC that would result if the 

amended energy conservation standards were at 86 percent thermal efficiency. 

Raypak commented that Efficiency Level 6 (i.e., 86 percent) requires sealed combustion, 

which will be a condensing system. (Raypak, Public Meeting Transcript, No. 34.4 at pp. 120­

121) AHRI urged DOE to exclude near-condensing thermal efficiency levels from its analysis. 

AHRI pointed out that manufacturers would need to address a range of field installations and 

operating conditions if a minimum energy conservation standard level is set in the nearcondensing range. (AHRI No. 43 at p. 5) 

In response, DOE is aware of a pool heater model on the market at Efficiency Level 6. 

According to product literature, these models do not appear to incorporate condensate 

management. Therefore, DOE did not change the technology options at Efficiency Level 6 to 

represent a condensing pool heater. However, DOE’s technology option for Efficiency Level 6 

does include sealed combustion, as Raypak suggested. 

4. Cost Assessment Methodology 

At the start of the preliminary engineering analysis, DOE identified the energy efficiency 

levels associated with residential heating products on the market, as determined in the market 

assessment. DOE also identified the technologies and features that are typically incorporated into 

products at the baseline level and at the various energy efficiency levels above the baseline. 

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Next, DOE selected products for the physical teardown analysis that corresponded to the 

representative rated storage volumes and input capacities. DOE gathered the information from 

the physical teardown analysis to create bills of materials using a reverse engineering 

methodology. After that, DOE used the physical teardown analysis to identify the design 

pathways manufacturers typically use to increase the EF of residential water heaters, the AFUE 

of residential DHE, or the thermal efficiency of residential pool heaters. DOE calculated the 

MPC for products spanning the full range of efficiencies from the baseline to the maximum 

technology available at various levels, and it also identified each technology or combination of 

technologies in each product that was responsible for improving the energy efficiency. DOE 

determined the cost-effectiveness of each technology by comparing the increase in MPC to the 

increase in energy efficiency. For the NOPR, DOE reexamined and revised several of the steps 

in its cost assessment methodology based on additional teardown analysis and in response to 

comments received on the preliminary analysis. 

During the preparation and refining of the cost-efficiency comparison and MPCs for the 

NOPR, DOE also held interviews with manufacturers to gain insight into each of the water 

heating, direct heating, and pool heating industries and requested comments on the engineering 

approach DOE used. DOE used the information gathered from these interviews, along with the 

information gathered through additional teardown analysis and public comments, to refine 

efficiency levels and assumptions in the cost model. Next, DOE converted the MPCs into MSPs 

using publicly-available water heating, direct heating, and pool heating industry financial data, in 

addition to manufacturers’ feedback. Further information on comments received and the 

revisions to the analysis methodology is presented in subsections a through g of this section. For 

additional detail, see chapter 5 of the NOPR TSD. 

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a. Teardown Analysis 

To assemble bill of materials (BOMs) and to calculate the manufacturing costs of the 

different components in residential heating products, DOE disassembled multiple residential 

heating products into their base components and estimated the materials, processes, and labor 

required for the manufacture of each individual component, a process referred to as a “physical 

teardown.” Using the data gathered from the physical teardowns, DOE characterized each 

component according to its weight, dimensions, material, quantity, and the manufacturing 

processes used to fabricate and assemble it. DOE also used a supplementary method, called a 

“virtual teardown,” which uses published manufacturer catalogs and supplementary component 

data to estimate the major physical differences between a product that was physically 

disassembled and a similar product that was not. For supplementary virtual teardowns, DOE 

gathered product data such as dimensions, weight, and design features from publicly-available 

information, such as manufacturer catalogs. DOE obtained information and data not typically 

found in catalogs and brochures, such as fan motor details, gas manifold specifications, or 

assembly details, from the physical teardowns of a similar product or through estimates based on 

industry knowledge. The teardown analysis for this engineering analysis included over 40 

physical and virtual teardowns of water heaters, DHE, and pool heaters during the preliminary 

analysis and over 20 additional teardowns performed for the NOPR analysis. The additional 

teardowns performed for the NOPR analysis allowed DOE to further refine the product 

components and assumptions used to develop the MPCs. 

The teardown analysis allowed DOE to identify the technologies that manufacturers 

typically incorporate into residential heating products, along with the efficiency levels associated 

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with each technology or combination of technologies. DOE used the teardown analysis to create 

detailed BOMs for each product class. The BOMs from the teardown analysis were then placed 

into the cost model to calculate the MPC for the representative product in each product class. See 

chapter 5 of the NOPR TSD for more details on the teardown analysis. 

b. Cost Model 

The end result of each teardown is a structured BOMs. DOE developed structured BOMs 

for each of the physical and virtual teardowns. The BOMs incorporate all materials, components, 

and fasteners classified as either raw materials or purchased parts and assemblies, and 

characterize the materials and components by weight, manufacturing processes used, 

dimensions, material, and quantity. The cost model is a Microsoft Excel spreadsheet that 

converts the materials and components in the BOMs into dollar values based on the price of 

materials, labor rates associated with manufacturing and assembling, and the cost of overhead 

and depreciation. To convert the information in the BOMs to dollar values for the preliminary 

analysis, DOE collected information on labor rates, tooling costs, raw material prices, and other 

factors. For purchased parts, the cost model estimates the purchase price based on volumevariable price quotations and detailed discussions with manufacturers and component suppliers. 

For fabricated parts, the prices of raw metal materials (e.g., tube, sheet metal) are estimated on 

the basis of 5-year averages. The cost of transforming the intermediate materials into finished 

parts is estimated based on current industry pricing. For the NOPR analysis, DOE updated all of 

the labor rates, tooling costs, raw material prices, the costs of resins, and the purchased parts 

costs. Chapter 5 of the NOPR TSD describes DOE’s cost model and definitions, assumptions, 

and estimates. 

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DOE received several comments on the material prices collected for use in the cost 

model, as discussed below. 

Bock commented that manufacturer production costs were calculated approximately 2 

years before the public meeting for the preliminary analysis. Bock noted that the price of steel 

has increased tremendously and that DOE should recalculate these costs. (Bock, Public Meeting 

Transcript, No. 34.4 at p. 27) In written comments, Bock reiterated that because material prices, 

particularly for steel, have increased significantly since DOE completed its analysis, DOE’s 

estimated manufacturer production costs and selling prices should be adjusted to reflect this 

trend. (Bock, No. 53 at p. 1) 

In contrast, ACEEE commented that DOE significantly overestimated the cost of 

compliance with amended standards to the consumer. ACEEE stated that this was due to the 

effects of changing material prices on products and suggested that it would be appropriate for 

DOE to review past rulemakings to determine the accuracy of DOE’s analytical approaches. 

(ACEEE, Public Meeting Transcript, No. 34.4 at pp. 81-82) Southern Company disagreed with 

ACEEE regarding the cost to the consumer and referenced the most recent residential air 

conditioner rulemaking which was done when commodity prices were depressed. Southern stated 

that because of the depressed commodity prices, the actual costs were higher than DOE’s 

projections. (Southern, Public Meeting Transcript, No. 34.4 at p. 82) Further, Southern 

commented that a 5-year rolling average of commodity prices would be appropriate for this 

rulemaking. (Southern, Public Meeting Transcript, No. 34.4 at p. 83) Rheem agreed with 

Southern regarding commodity prices. Regarding the residential central air conditioner 

rulemaking, Rheem stated that the results were devastating to the industry and domestic 

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manufacturers, and the company urged DOE to be very careful in estimating the cost to 

consumers because of the potential for a significantly adverse impact on domestic manufacturing 

jobs. (Rheem, Public Meeting Transcript, No. 34.4 at pp. 83-84) In its written comments, Rheem 

noted that manufacturer production costs were derived from material prices that were based on 5­

year averages from 2003 to 2007. Rheem urged DOE to revise material prices due to their drastic 

increases and volatility driven by global demand. (Rheem, No. 49 at pp. 2-3) A.O. Smith agreed 

that using material prices from 2003 through 2007 to determine a normalized average may be 

understating actual prices, which continued to fluctuate but generally increased in 2008. (A.O. 

Smith, No. 37 at p. 4) 

Because all interested parties agreed with DOE’s approach to use 5-year rolling average 

material prices in the engineering analysis, DOE used the same approach in the NOPR analysis. 

DOE acknowledges Bock’s, Rheem’s, and A.O. Smith’s concerns about the timing of the 

production cost calculations because the majority of manufacturer production cost can typically 

be attributed to materials, which can fluctuate greatly from year to year. DOE uses a 5-year span 

to normalize the fluctuating prices experienced in the metal commodities markets to screen out 

temporary dips or spikes. DOE believes a 5-year span is the longest span that would still provide 

appropriate weighting to current prices experienced in the market. DOE updates the 5-year span 

for metal prices based on a review of updated commodity pricing data, which point to continued 

increases. Considering the significant amount of steel and copper in the different heating 

products at issue in this rulemaking, incorporating commodity prices that reflect 5-year average 

prices as close to current conditions would best reflect overall market conditions. Consequently, 

DOE calculated a new 5-year average materials price using the U.S. Department of Labor’s 

Bureau of Labor Statistics (BLS) Producer Price Indices (PPIs) for various raw metal materials 

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from 2005 to 2009 to calculate new averages, which incorporate the changes within each 

material industry and inflation. DOE also used BLS PPI data to update current market pricing for 

other input materials such as plastic resins and purchased parts. Finally, DOE adjusted all 

averages to 2008$ using the gross domestic product implicit price deflator. 

c. Manufacturing Production Cost 

Once the cost estimate for each teardown unit was finalized, DOE totaled the cost of 

materials, labor, and direct overhead used to manufacture a product in order to calculate the 

manufacturer production cost for the preliminary analysis. The total cost of the product was 

broken down into two main costs: (1) the full manufacturer production cost or MPC; and (2) the 

non-production cost, which includes selling, general, and administration (SG&A) costs, the cost 

of research and development, and interest. DOE estimates the MPC at each efficiency level 

considered for each product class, from the baseline through the max-tech. After DOE 

incorporates all of the assumptions into the cost model, DOE calculates the different percentages 

of each aspect of production cost (i.e. materials, labor, depreciation, and overhead) that make up 

the total production cost. The product cost percentages are used to validate the assumptions by 

comparing them to manufacturers’ actual financial data published in annual reports, along with 

feedback from manufacturers during interviews. DOE uses these production cost percentages in 

the MIA (see section IV.H). 

For the NOPR analysis, DOE revised the assumptions in the cost model based on 

additional teardown analysis, updated pricing, and additional manufacturer feedback, which 

resulted in revised MPCs and production cost percentages. DOE calculated the average product 

cost percentages by product type (i.e., water heater, DHE, pool heater) as well as by product 

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class (e.g., gas-fired storage water heater, electric storage water heater) due to the large 

variations in production volumes, fabrication and assembly costs, and other assumptions that 

affect the calculation of the unit’s total MPC. Chapter 5 of the NOPR TSD shows DOE’s 

estimate of the MPCs for the NOPR phase of this rulemaking, along with the different 

percentages for each aspect of the production costs that make up the total product MPC. 

DOE received various comments in response to the MPCs presented in its preliminary 

analysis, as discussed below. 

For pool heaters, Raypak stated that the cost difference between the ignition systems of 

gas-fired pool heaters should be more than $3, because the electronic ignition controls cost more 

than $3. Raypak also commented that the materials used for Efficiency Level 6 must be suitable 

for condensing applications, which means that DOE’s estimate for MPC for Efficiency Level 6 is 

understated. (Raypak, Public Meeting Transcript, No. 34.4 at pp. 120-121) 

In response, DOE revised all of the MPCs for residential heating products for the NOPR 

analyses. In the case of pool heaters, DOE reexamined the component cost assumptions for 

electronic ignitions and revised the estimate of the cost to implement an electronic ignition 

design. The revised cost assumptions for an electronic ignition are documented in chapter 5 of 

the NOPR TSD. DOE also revised the costs for Efficiency Level 6, but did not consider the costs 

associated with condensate management at that efficiency level. Some residential pool heater 

designs currently on the market do not appear to accommodate condensing operations at 86 

percent thermal efficiency, thereby suggesting that such costs need not be incurred to reach that 

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efficiency level. Therefore, DOE did not account for condensate management in the cost of 

products at Efficiency Level 6. 

Regarding gas-fired storage water heaters, Rheem stated that the MPC and MSP for 

Efficiency Level 6 should be higher. (Rheem, No. 49 at p. 4) A.O. Smith asserted that the 

estimated manufacturer production costs in DOE’s preliminary analysis are too low for max-tech 

water heaters (i.e., heat pump water heaters and condensing gas-fired water heaters). (A.O. 

Smith, No. 37 at p. 4) Additionally, A.O. Smith stated that the baseline MPCs are approximately 

11 percent low for gas-fired storage water heaters and 13 percent low for electric storage water 

heaters. (A.O. Smith, No. 37 at p. 6) 

On this point, DOE has revised its cost estimates for storage water heaters at all levels, 

including the baseline and the max-tech efficiency levels based on manufacturer feedback 

obtained during interviews performed for the MIA (see section IV.H.4). The resulting cost 

estimates for the NOPR analysis are higher than in the preliminary analysis. Chapter 5 of the 

NOPR TSD discusses DOE’s cost estimates for max-tech storage water heaters. 

BWC commented that the energy factor for condensing gas-fired storage water heaters 

(the max-tech level) was based on models on the market that are not classified as residential 

water heaters. BWC stated that it is unfair to use non-residential models to determine the cost of 

condensing water heaters, because non-residential models do not include components and the 

associated costs to make them compliant with other regulations, such as FVIR and ultra-low 

NOX requirements. (BWC, No. 46 at p. 2) 

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For DOE’s estimate of the manufacturing cost of condensing gas-fired storage water 

heaters, DOE did include the additional cost of FVIR in both the preliminary and NOPR 

analyses, which is not found in commercial water heaters currently on the market. DOE also 

based its condensing water heater design on one that would be more typical of residential 

applications (i.e., 40-gallon storage volume and 40,000 Btu/h input capacity). In addition, DOE 

developed separate manufacturer production costs for gas-fired storage water heaters with 

standard burners and for gas-fired storage water heaters with ultra-low NOX burners (section 

IV.C.2), including those gas-fired water heaters that would have been at the max-tech efficiency 

level. 

d. Cost-Efficiency Curves 

The result of the engineering analysis is a set of cost-efficiency curves. DOE created 11 

curves representing each product class examined for this NOPR. For storage water heaters, the 

cost-efficiency curves show the representative rated storage volumes in addition to the other 

storage volumes analyzed. 

Chapter 5 of the NOPR TSD contains the 11 cost-efficiency curves in the form of energy 

efficiency (i.e., EF, AFUE, or thermal efficiency) versus MPC. The results show that the costefficiency curves are nonlinear. As efficiency increases, manufacturing becomes more difficult 

and more costly. Large jumps are evident when efficiencies approach levels where electronic 

ignition, blower motors, power vent, and condensing operation are included in designs. 

Additionally, MPC increases greatly when heat pump technology is used as an alternative to 

resistive heating for electric storage water heaters. 

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The non-linear relationship is common across all product types. In addition, DHE and 

high-efficiency pool heaters see larger increases in MPC due to lower production volumes than 

water heaters. 

In response to the cost-efficiency curves developed for the preliminary analysis, ACEEE 

asserted that DOE's cost-efficiency relationship ignores the potential “learning-by-doing” effects 

that have driven down the costs of technologies for almost all regulated goods. The commenter 

argued that more stringent standards lead to product redesigns that almost inevitably result in 

lower consumer prices for more-efficient goods after the amended standards have become 

effective. ACEEE recommended that DOE balance the current cost-efficiency development 

approach with the historical results of rulemakings on manufacturer production costs. (ACEEE, 

No. 35 at p. 5) 

Similarly, NRDC questioned DOE predictions that more-efficient products result in 

escalating costs and stated that DOE should re-analyze these projections. NRDC also commented 

that this rulemaking addresses products previously covered and analyzed in other rulemakings, 

and asserted that DOE should evaluate previous analyses by reviewing its predictions versus the 

realized effects of standards so that costs are not overestimated for this rulemaking. NRDC stated 

that an overestimation of the cost to improve efficiency could cause DOE to set standards below 

the levels that would be justified if DOE were to determine costs by more accurate methods, a 

result which would fail to meet the requirements of the statute. (NRDC, No. 48 at p. 4) 

DOE does not agree with ACEEE or NRDC for the following reasons. DOE recognizes 

that every change in minimum energy conservation standards is an opportunity for manufacturers 

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to make investments beyond what would be required to meet the new standards in order to 

minimize costs or to respond to other factors. However, DOE’s manufacturing cost estimates 

seek to gauge the most likely industry response to meet the requirements of proposed energy 

conservation standards. DOE’s analysis of manufacturing cost must be based on currentlyavailable technology that would provide a nonproprietary pathway for compliance with a 

standard once it becomes effective, and, thus, DOE cannot speculate on future product and 

market innovation. In response to a change in energy conservation standards, manufacturers have 

made a number of changes to reduce costs in the past. For example, DOE understands 

manufacturers have re-engineered products to reduce cost, made changes to manufacturing 

process to reduce labor costs, and moved production to lower-cost areas to reduce labor costs. 

However, these are individual company decisions, and it is impossible for DOE to forecast such 

decisions. DOE does not know of any data that would allow it to determine the precise course a 

manufacturer may take. Furthermore, while manufacturers have been able to reduce the cost of 

products that meet previous energy conservation standards, there are no data to suggest that any 

further reductions in cost are possible. Therefore, it would not be appropriate to speculate about 

cost reduction based upon prior actions of manufacturers of either the same or other products. 

Setting energy conservation standards upon relevant data is particularly important given EPCA’s 

anti-backsliding provision at 42 U.S.C. 6295(o)(1). 

e. Manufacturer Markup 

DOE applies a non-production cost multiplier (the manufacturer markup) to the full MPC 

to account for corporate non-production costs and profit. The resulting manufacturer selling price 

is the price at which the manufacturer can recover all production and non-production costs and 

earn a profit. To meet new or amended energy conservation standards, manufacturers often 

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introduce design changes to their product lines that result in increased manufacturer production 

costs. Depending on the competitive environment for these particular products, some or all of the 

increased production costs may be passed from manufacturers to retailers and eventually to 

customers in the form of higher purchase prices. As production costs increase, manufacturers 

typically incur additional overhead. The MSP should be high enough to recover the full cost of 

the product (i.e., full production and non-production costs), and yield a profit. The manufacturer 

markup has an important bearing on profitability. A high markup under a standards scenario 

suggests manufacturers can pass through the increased variable costs and some of the capital and 

product conversion costs (the one-time expenditures). A low markup suggests that manufacturers 

will not be able to recover as much of the necessary investment in plant and equipment. 

To calculate the manufacturer markups for the preliminary analysis, DOE used 10-K 

reports from publicly-owned residential heating products companies. (SEC 10-K reports can be 

found using the search database at: http://www.sec.gov/edgar/searchedgar/webusers.htm.) The 

financial figures necessary for calculating the manufacturer markup are net sales, costs of sales, 

and gross profit. For the preliminary analysis, DOE averaged the financial figures spanning 2000 

to 2006 and then calculated the markups. For the NOPR analysis, DOE updated the financial 

figures using 10-K reports spanning 2003 to 2008. To calculate the time-average gross profit 

margin for each firm, DOE summed the gross profit for all the years and then divided the result 

by the sum of the net sales for those years. DOE presented the calculated markups to 

manufacturers during the interviews for the NOPR (see section IV.H.4). DOE considered the 

feedback from manufacturers in order to supplement the calculated markup, and refined the 

markup to better reflect the residential heating products market. DOE developed the 

manufacturer markup by weighting the feedback from manufacturers on a market share basis, 

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since manufacturers with larger market shares more accurately represent a greater portion of the 

market. DOE used a constant markup to reflect the MSPs of the baseline products as well as 

more-efficient products. DOE took this approach because amended standards may make highefficiency products, which currently are considered premium products, and make them the 

baselines. See chapter 5 of the NOPR TSD for more details about the markup calculation. 

In response to the preliminary analysis, Bock commented on the MPC and MSP for oilfired storage water heaters at Efficiency Level 6. Bock stated that the MPC is reasonable in terms 

of considering increased material costs, but that the MSP is much too low (implying that DOE’s 

markup for oil-fired storage water heaters is too low). The commenter stated that the distribution 

chain is flawed for some manufacturers and that, unlike gas-fired and electric storage water 

heaters, oil-fired storage water heaters require an oil burner that adds approximately $400 to the 

MSP. Based upon the above reasoning, Bock stated that the MSP for Efficiency Level 6 is 

approximately $1,400. (Bock, No. 53 at p. 1) 

The MSP, as defined by DOE, is the selling price from the manufacturer to the first step 

in its distribution chain (e.g., a wholesaler, a distributor, or a national retailer). The MSP does not 

include any further markups for the rest of the distribution chain, but the MPC for oil-fired 

storage water heaters includes the price of the burner. Therefore, the MSP as defined by DOE 

can be significantly lower than the purchase price for an end-consumer, which is what DOE 

believes Bock is referring to. The purchase price would depend on the typical markups in each 

step of the distribution chain as well as the number of layers of distribution the product has to 

clear before reaching the end-consumer. Section IV.D of this notice describes the distribution 

chain markups in further detail. 

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f. Shipping Costs 

For the preliminary analysis, DOE accounted for the shipping costs for residential heating 

products as part of the non-production costs that comprise the manufacturer markup. This 

approach is typical of energy conservation standards rulemakings for residential products. 

Following the preliminary analysis, DOE received several comments about the impact of 

an amended energy conservation standard on shipping (i.e., freight) costs for storage water 

heaters. A.O. Smith commented that freight is not a manufacturing cost, but it is a substantial 

cost incurred for water heaters, especially tank-type models. Water heater manufacturers 

generally pay for shipping to most customers; therefore, this cost is added in the manufacturer's 

gross margin calculation. A.O. Smith noted that an increase in water heater size will add cost to 

the overall manufacture/purchase transition. (A.O. Smith, No. 37 at p. 4) Similarly, BWC 

commented that DOE underestimated the increase in freight costs as overall dimensions increase 

when larger cavity sizes are used. (BWC, No. 46 at p. 2) 

Although the non-production costs typically account for freight in the manufacturer 

markup, DOE responded to these comments by separating the shipping costs from the markup 

multiplier for storage water heaters for the NOPR analysis in order to make the MSP calculation 

more transparent. DOE calculated the MSP for storage water heaters by multiplying the MPC 

determined from the cost model by the manufacturer markup and adding shipping costs. More 

specifically, DOE calculated shipping costs based on a typical 53-foot straight frame trailer with 

a storage volume of 4,240 cubic feet. DOE examined the average sizes of representative water 

heaters and determined the number of units that would fit in each trailer, based on assumptions 

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about the arrangement of water heaters in the trailer. Finally, DOE calculated the average cost 

for each unit shipped based on an average cost of $4,000 per trailer load. See chapter 5 of the 

NOPR TSD for more details about DOE’s shipping cost assumptions and the shipping costs per 

unit for each storage water heater product class. 

g. Manufacturer Interviews 

Throughout the rulemaking process, DOE seeks feedback and insight from interested 

parties to improve the information used in its analyses. DOE interviewed manufacturers as a part 

of the NOPR manufacturer impact analysis (see section IV.H.4). During the interviews, DOE 

sought feedback on all aspects of its analyses for residential heating products. For the 

engineering analysis, DOE discussed the analytical assumptions and estimates, cost model, and 

cost-efficiency curves with manufacturers of water heaters, DHE, and pool heaters. DOE 

considered all the information manufacturers provided when refining the cost model and 

assumptions. DOE incorporated equipment and manufacturing process figures into the analysis 

as averages to avoid disclosing sensitive information about individual manufacturers’ products or 

manufacturing processes. More details about the manufacturer interviews are contained in 

chapter 12 of the NOPR TSD. The interview guides DOE distributed to manufacturers are 

contained in appendix 12-A of the NOPR TSD. 

5. Results 

The results from the engineering analysis were used in the LCC analysis to determine 

consumer prices for residential heating products at the various potential standard levels. Using 

the manufacturer markup, DOE calculated the MSPs of the representative water heaters, DHE, 

and pool heater from the MPCs developed using the cost model. Chapter 5 of the NOPR TSD 

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provides the full list of MPCs and MSPs at each efficiency level for each analyzed representative 

product. 

6. Scaling to Additional Rated Storage Capacities for Water Heaters 

To account for the large variation in the rated storage volumes of residential storage 

water heaters and differences in both usage patterns and first cost to consumers of water heaters 

larger or smaller than the representative capacity, DOE scaled its MPCs and efficiency levels at 

the representative capacities to several discrete rated storage volumes at capacities higher and 

lower than the representative storage volume for each storage water heater product class. DOE 

developed the MPCs for water heaters at each of the rated storage volumes shown in Table 

IV.22. These storage volumes were determined to be the most prevalent storage volumes 

available on the market during the market analysis (see Chapter 3 of the TSD). The MPCs 

developed for this analysis were used in the downstream LCC analysis, where a distribution of 

MPCs was used based on the estimated market share of each rated storage volume (see Section 

 IV.E). 

Table IV.22 Additional Water Heater Storage Volumes Analyzed 

Water Heater Product Class Storage Volumes Analyzed (Gallons, U.S.) 

Gas-fired Storage 30, 50, 65, 75 

Electric Storage 30, 40, 66, 80, 119 

Oil-fired Storage 50 

To develop the MPCs for the analysis of additional storage volumes, DOE developed a 

cost model based on teardowns of representative units from a range of nominal capacities and 

multiple manufacturers. Whenever possible, DOE maintained the same product line that was 

used for the teardown at the representative storage volume to allow for a direct comparison 

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between models at the representative storage volume and models at higher and lower storage 

volumes. The cost model accounts for changes in the size of water heater components that would 

scale with tank volume (e.g., tank dimensions, wrapper dimensions, wall thicknesses, insulation 

thickness, anode rod(s), flue pipe(s)). Components that typically do not change based on tank 

volume (e.g., gas valves, thermostats, controls) were assumed to remain largely the same across 

the different storage volume sizes, while accounting for price differences due to changes in 

insulation thickness. DOE estimated the changes in material and labor costs that occur at volume 

sizes higher and lower than the representative capacity based on observations made during 

teardowns and professional experience. Performing teardowns of models outside of the 

representative capacity allowed DOE to accurately model certain characteristics (such as tank 

wall thickness and wrapper thickness) that are not identifiable in manufacturer literature. 

While DOE was able to receive feedback from manufacturers regarding the 

manufacturing costs of storage water heaters at representative storage capacities, DOE was 

unable to solicit manufacturing cost feedback from manufacturers regarding the additional water 

heaters shown above. However, DOE was able to finely tune the performance of the cost model 

to accurately predict the weights of non-representative units via the additional teardowns. For 

example, DOE observed that the tank wall thickness increases as a function of tank diameter. 

Based on the feedback received from manufacturers for representative units and the accuracy of 

the material predictions for non-representative units, DOE believes that its scaling is accurate. In 

addition to comparing model output to actual teardowns, model outputs were also compared to 

published catalog data. 

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The results of DOE’s analysis for the additional storage volumes are presented in chapter 

5 of the NOPR TSD (engineering analysis). Chapter 5 of the NOPR TSD also contains additional 

details about the calculation of MPCs for storage volumes outside of the representative capacity. 

DOE is seeking comment its MPC estimates at the additional storage volumes outside of the 

representative storage volumes, as well as on its approach to developing these MPCs. (See issue 

number 12 under Section VII.E “Issues on Which DOE Seeks Comment”). 

7. Energy Efficiency Equations 

As part of the engineering analysis for residential water heaters, DOE reviewed the 

energy efficiency equations that define the existing Federal energy conservation standards for 

gas-fired and electric storage water heaters. The energy efficiency equations allow DOE to 

expand the analysis on the representative rated storage volume to the full range of storage 

volumes covered under the existing Federal energy conservation standards. 

DOE uses energy efficiency equations to characterize the relationship between rated 

storage volume and energy factor. The energy efficiency equations allow DOE to account for the 

increases in standby losses as tank volume increases. As the tank storage volume increases, the 

tank surface area increases. The larger surface area results in higher heat transfer rates that result 

in higher jacket losses. Other losses to consider are the feed-through losses and flue losses (for 

gas-fired water heaters). The current energy efficiency equations show that for each water heater 

class, the minimum energy factor decreases as the rated storage volume increases. 

After reviewing market data and product literature for gas-fired and electric storage water 

heaters, DOE presented two approaches for amending the existing energy efficiency equations 

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for storage water heaters. One approach was to maintain the same slope used in the existing 

equations, but to incrementally increase the intercepts. This created energy efficiency equations 

with the same slope to define EF across the entire range of storage volumes for each efficiency 

level. The advantage of this approach would be to maintain the same slopes established in 

NAECA and used in the 2001 rulemaking, which have historically characterized the water heater 

market. 

A second approach was to adjust the slope of the energy efficiency equations based on 

the review of the storage water heater models currently on the market. The advantage of this 

approach is the acknowledge the changes in the product efficiencies offered over time and 

account for these changes. DOE examined the efficiencies of models with varying storage 

volumes, but with the same or similar design features. DOE varied the slope of the line to 

maximize the number of models in the series that meet the efficiency levels DOE is considering 

in the full range of rated storage volumes. DOE sought comments on approaches to develop the 

energy efficiency equations for all storage volumes and all efficiency levels of gas-fired and 

electric storage water heaters. Specifically, DOE sought comment on an alternative approach 

based on model series that incorporate current market data from AHRI’s Consumers’ Directory 

to generate revised equation slopes that minimize the number of models that would become 

obsolete. DOE received feedback from several interested parties, as discussed immediately 

below. 

ACEEE commented that the alternative energy efficiency equations appear to relax the 

energy factor requirements for smaller capacity water heaters while making the energy factor 

requirements more stringent for larger capacity water heaters. (ACEEE, Public Meeting 

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Transcript, No. 34.4 at p. 100) AHRI stated that there are more options for saving energy at 

higher capacities. AHRI further stated that additional energy may be saved by using an 

alternative energy efficiency equation and that there may be two equations that define the energy 

conservation standard across the range of rated volumes. (AHRI, Public Meeting Transcript, No. 

34.4 at pp. 101-102) Rheem argued that size constraints must be considered when determining 

alternative energy efficiency equations and efficiency levels for replacement water heaters. 

Rheem stated that there are certain doorways and attics where installations will not be possible 

due to size constraints. (Rheem, Public Meeting Transcript, No. 34.4 at p.104) 

Rheem expressed concern that changes to the energy efficiency equations may result in 

the elimination of certain capacities. However, Rheem stated that the current slope is 

inappropriate as it would set unattainable levels for small and large capacity water heaters. 

Rheem commented that the proposed alternative equations disproportionately affect gas-fired 

storage water heaters, especially large-storage-volume products. In sum, Rheem recommended 

that DOE should revisit the current equations to determine whether energy factors across the full 

range of rated storage volumes are still appropriate. (Rheem, No. 49 at p. 6) 

EEI expressed support for DOE's decision to update the energy efficiency equations for 

storage-type water heaters. However, EEI cautioned DOE to avoid eliminating certain storage 

volumes from the market. Therefore, EEI suggested that DOE develop a two-slope approach for 

smaller and larger water heaters to ensure competition in the marketplace. (EEI, No. 40 at p. 4) 

In response, DOE agrees that the alternative slopes examined at each efficiency level for 

the preliminary analysis were not as stringent for the lower storage volume models and were 

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more stringent for higher storage volume models when compared to the slope defining existing 

standards. DOE presented such slopes because many models at lower storage volumes have 

already reached close to the maximum possible efficiency with conventional technologies, while 

there is more potential for increased energy efficiency for models with larger storage volumes. 

However, DOE also notes that this increased stringency may discourage manufacturers from 

continuing to develop larger storage volume models. To attempt to mitigate these issues, DOE is 

proposing “two-slope” energy efficiency equations to better define the relationship between 

storage volume and energy factor across the range of covered storage volumes. 

ACEEE stated its support for modifying the energy efficiency equations for electric and 

gas-fired storage water heaters if the effect would be to increase the EF for larger units (i.e., 

those units with a higher rated storage volume). For electric storage water heaters, ACEEE 

supported capping the EF requirement at 0.95, even for the smaller rated storage types. (ACEEE, 

No. 35 at p. 6) NEEA and NPCC agreed with DOE's intention to adjust the slopes of the energy 

efficiency equations for gas-fired and electric storage water heaters. Specifically, NEEA and 

NPCC stated their support for the recommended approach by fitting the energy efficiency 

equations to actual product lines on the market. NEEA and NPCC recommended a further 

lessening of the slope than the examples shown in the preliminary analysis to preserve at least 

one model offered on the current market over the range of storage volumes. (NEEA and NPCC, 

No. 42 at p. 6) BWC commented that the energy efficiency equations for water heaters should be 

changed, arguing that as amended standards increase energy efficiency, it becomes increasingly 

difficult for units with larger gallon capacities to comply. (BWC, No. 46 at p. 1) 

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In contrast, A.O. Smith stated that the existing energy efficiency equations should not be 

changed. While A.O. Smith acknowledged some of the points DOE made in the preliminary 

analyses regarding the existing energy efficiency equations, A.O. Smith stated it would take a 

much more detailed investigation than DOE has used to validate the points raised. (A.O. Smith, 

No. 37 at p. 8) 

While DOE acknowledges that A.O. Smith does not support changing the energyefficiency equations for gas-fired and electric storage water heaters, DOE believes that the slopes 

of the energy efficiency equations can be revised to more accurately characterize the relationship 

between storage volume and energy factor for the current storage water heater market. 

For this NOPR, DOE reviewed AHRI’s March 2009 Consumers' Directory and 

developed a database of products that includes all gas-fired and electric storage water heater 

models subject to this rulemaking. DOE also reviewed manufacturers’ catalogs to gather 

information on the design characteristics of each water heater model. The manufacturers’ 

catalogs include information on efficiency ratings, product series descriptions, jacket insulation 

thicknesses, ignition types, and drafting methods (i.e., natural or power vented drafting). To 

further investigate the relationship between EF and rated storage volume, DOE conducted testing 

according to the water heater test procedure specified in 10 CFR 430, subpart B, appendix E (the 

same test procedure manufacturers use to certify products in AHRI’s Consumers’ Directory) to 

verify the EF values. DOE tested model series with similar design characteristics and volumetric 

designs to isolate how EF changes with rated storage volume. DOE performed this testing for a 

number of model series at various efficiencies and for a variety of manufacturers. DOE chose 

models to test by selecting product series from multiple major manufacturers that span the range 

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of rated volumes within each product class and that span the range of efficiency levels. After 

completion of testing, DOE conducted a teardown analysis of the tested models and confirmed 

the specific technologies that affect energy efficiency and the volumetric characteristics of the 

tank. DOE used the results of this analysis to adjust the energy efficiency equations. 

Using the information gathered from product catalogs, independent testing results, and 

product teardowns, DOE developed an alternative approach for revising the energy efficiency 

equations based on three constraints. DOE applied the following constraining criteria to the 

development process: 

•	 For gas-fired water heaters, each energy efficiency equation must include units with 

the specified efficiency level at 40-gallon rated storage volume. 

•	 For electric storage water heaters, each energy efficiency equation must include units 

with the specified efficiency level at 50-gallon rated storage volume. 

•	 The energy efficiency equations cannot result in a standard that falls below current 

standards over the entire rated volume range. 

DOE chose this approach because it takes into account the models currently on the 

market, considers the technologies incorporated into those models, and attempts to optimize the 

number of models across the entire rated volume range that would meet the efficiency levels 

DOE is considering. The approach also attempts to minimize the number of models that would 

be eliminated from the market by the efficiency levels DOE is considering across the entire 

range of storage volumes. 

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In examining the market data to develop the energy efficiency equations, DOE noted a 

trend of greater decline in energy efficiency at higher rated storage volumes than at lower storage 

volumes. As a result, DOE developed energy efficiency equations with varying slopes at several 

of the efficiency levels analyzed for the NOPR analysis. These equations maintain one slope 

from the minimum covered rated storage volume up to a certain rated storage volume (i.e., 60 

gallons for gas-fired storage water heaters and 80 gallons for electric storage water heaters), and 

then maintain a different slope over the remaining range of covered storage volumes. DOE 

selected 60-gallon and 80-gallon storage volumes as the point where the change in slope of the 

energy efficiency equations for gas-fired and electric storage water heaters, respectively, should 

occur, because the market data suggested a natural break in the available products at those 

points. Models with gallon sizes above 60 gallons for gas-fired units and 80 gallons for electric 

units typically experienced reduced efficiencies more rapidly as a function of increasing storage 

volume, as compared to units with lower volume sizes. The higher ends of the residential storage 

capacities also have a lower volume of shipments. 

Based upon the above approach, for gas-fired storage water heaters, DOE did not change 

the slope of the energy efficiency equation for storage volumes above 60 gallons across 

efficiency levels (i.e., DOE kept the same slope above 60 gallons at each efficiency level). Few 

gas-fired storage water heaters exist with storage volumes greater than 60 gallons, and, therefore, 

the market data were very limited. Due to the lack of data for the efficiency at larger gas-fired 

water heater storage volumes, DOE used the slope defining the current standard for residential 

gas-fired storage water heaters, as listed in DOE’s regulations at 10 CFR 430.32(d). In other 

words, DOE maintained the same slope for Efficiency Level 1 through Efficiency Level 5 for 

gas-fired storage water heaters above 60 gallons. 

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For the max-tech efficiency levels considered for gas-fired storage water heaters and 

electric storage water heaters, DOE also did not change the slope of the energy efficiency 

equations. Because there are no products currently available on the market meeting the max-tech 

efficiency levels, DOE could not perform an analysis or come to any definitive conclusion about 

the effect of storage volume on energy factor at these efficiency levels. However, DOE does 

recognize that with any storage water heater, the standby losses will increase with storage 

volume due to increased tank surface area. Because there is no data that DOE can use to make a 

determination of an appropriate slope at these levels, DOE maintained the relationship between 

storage volume and energy factor developed previously for water heaters. Therefore, the energy 

efficiency equations for the max-tech levels exhibit the same slopes used for the gas-fired storage 

water heater and electric storage water heaters in the current energy conservation standards at 10 

CFR Part 430.32(d). Table IV.23 and Table IV.24 show the energy efficiency equations 

developed for the NOPR for gas-fired and electric storage water heaters, respectively. 

Table IV.23 NOPR Energy Efficiency Equations for Gas Storage Water Heaters 

Efficiency Level 20 to 60 Gallons Over 60 and up to 100 

Gallons 

Baseline Energy Efficiency Equation EF = -0.00190(VR)+0.670 

EL 1 Energy Efficiency Equation EF = -0.00150(VR)+0.675 EF = -0.00190(VR)+0.699 

EL 2 Energy Efficiency Equation EF = -0.00120(VR)+0.675 EF = -0.00190(VR)+0.717 

EL 3 Energy Efficiency Equation EF = -0.00100(VR)+0.680 EF = -0.00190(VR)+0.734 

EL 4 Energy Efficiency Equation EF = -0.00090(VR)+0.690 EF = -0.00190(VR)+0.750 

EL 5 Energy Efficiency Equation EF = -0.00078(VR)+0.700 EF = -0.00190(VR)+0.767 

EL 6 Energy Efficiency Equation EF = -0.00078(VR)+0.8312 

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Table IV.24 NOPR Energy Efficiency Equations for Electric Storage Water Heaters 

Efficiency Level 20 to 80 Gallons Over 80 and up to 120 

Gallons 

Baseline Energy Efficiency Equation EF = -0.00132(VR)+0.97 

EL 1 Energy Efficiency Equation EF = -0.00113(VR)+0.97 EF = -0.00149(VR)+0.999 

EL 2 Energy Efficiency Equation EF = -0.00095(VR)+0.967 EF = -0.00153(VR)+1.013 

EL 3 Energy Efficiency Equation EF = -0.00080(VR)+0.966 EF = -0.00155(VR)+1.026 

EL 4 Energy Efficiency Equation EF = -0.00060(VR)+0.965 EF = -0.00168(VR)+1.051 

EL 5 Energy Efficiency Equation EF = -0.00030(VR)+0.960 EF = -0.00190(VR)+1.088 

EL 6 Energy Efficiency Equation EF = -0.00113(VR)+2.057 

EL 7 Energy Efficiency Equation EF = -0.00113(VR)+2.257 

DOE seeks comment on the energy efficiency equations for gas-fired and electric storage 

water heaters developed for the NOPR. In particular, DOE seeks comment on its approach to 

developing the energy efficiency equations, the appropriate slope of energy efficiency equations 

at each efficiency level analyzed, and the appropriate storage volumes for changing the slope of 

the line. DOE is also interested in alternatives to the energy efficiency equations that DOE 

should consider for the final rule. (See Issue 7 under “Issues on Which DOE Seeks Comment” in 

section VII.E of this NOPR.) 

There are very few models of oil-fired storage water heaters on the market. The lack of 

data to correlate storage volume and energy factor for oil-fired water heaters makes it difficult 

for DOE to conclude that an alternative approach is needed for the energy efficiency equations. 

In the preliminary analysis, DOE presented energy efficiency equations for oil-fired storage 

water heaters that were developed by maintaining the same slope used in the existing Federal 

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requirements found in 10 CFR Part 430.32(d). DOE did not present any alternative method to 

establishing energy efficiency equations for oil-fired storage water heaters. 

In response, AHRI stated its support for using the current energy efficiency equations for 

oil-fired storage water heaters. (AHRI, No. 43 at p. 5) 

Because DOE did not receive any comments in opposition to using the same slopes for 

oil-fired storage water heaters that currently define the existing Federal standards, DOE is 

continuing to use the same methodology for the NOPR. 

AHRI also recommended that DOE remove the volume adjustment term from the energy 

efficiency equations for gas-fired instantaneous water heaters and specify a minimum EF 

applicable to all sizes of residential instantaneous water heaters. (AHRI, No. 43 at p. 5) 

Additionally, A.O. Smith stated that because gas-fired instantaneous water heaters have no 

volume correction, an EF level for all sizes would be appropriate. (A.O. Smith, No. 37 at p. 7) 

DOE acknowledges that nearly all are rated at 0 gallons of storage volume. Because the 

volume adjustment term is multiplied by storage volume, this will by default eliminate the 

volume adjustment term from the energy efficiency equation used for gas-fired instantaneous 

water heaters with a rated storage volume of 0 gallons. However, by definition, gas-fired 

instantaneous water heaters may have a rated storage volume of up to 2 gallons. Therefore, DOE 

is proposing to maintain the volume adjustment factor for consistency with the other energyefficiency equations. 

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See chapter 5 of the NOPR TSD for additional information about the energy efficiency 

equations for residential water heaters. 

D. Markups to Determine Product Price 

By applying markups to the manufacturer selling prices estimated in the engineering 

analysis, DOE estimated the amounts consumers would pay for baseline and more-efficient 

products. At each step in the distribution channel, companies mark up the price of the product to 

cover business costs and profit margin. The appropriate markups for determining the consumer 

product price depend, therefore, on the type of distribution channels through which products 

move from manufacturer to consumer. 

Bock stated that DOE needs to consider that manufacturers sell to their representatives, 

who sell water heaters to distributors. (Bock, No. 53 at p. 2) DOE’s information indicates that 

manufacturer representatives work on commission to facilitate sales from manufacturers to both 

distributors and retailers, but they do not mark up the products. The commission is part of the 

manufacturers’ costs. 

The distribution channel for water heaters differs for replacement versus new 

applications, resulting in different markups. For replacement applications, manufacturers sell to 

either plumbing distributors or large retail outlets (typically large home-supply stores). Products 

destined for replacement applications follow one of two paths: (1) a retail outlet sells a unit to the 

consumer, who either installs it or hires someone to install it; or (2) a plumbing distributor sells a 

unit to a contractor, who then sells it to a consumer and installs it. Bock suggested modifying the 

first distribution channel to include a contractor-installer. (Bock, Public Meeting Transcript, No. 

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34.4 at pp. 140–141) DOE agrees that a contractor-installer may be involved in the first path, but 

because the consumer purchases the product directly, the contractor does not mark up the cost of 

the unit. Thus, DOE did not include a contractor-installer in the first distribution path. 

AHRI disagreed with the analytical results that indicate higher markups for new 

construction than for replacement applications. (AHRI, No. 33 at p. 1) DOE’s markup for new 

construction is higher because it includes a markup for builders. Because builders incur the cost 

of a water heater or direct heating equipment installed in a new home, DOE finds it appropriate 

to include a markup for this cost. To estimate a builder markup, DOE calculated an average 

markup that applies to all costs builders incur (based on Census data). 

NEEA and NPCC stated that DOE should repeat the process used to determine markups 

for the 2001 water heater rulemaking so that costs including markups align with the marketplace. 

They also stated that DOE’s method for validating calculated markups is insufficient, although 

further explanation was not provided. (NEEA and NPCC, No. 42 at pp. 6-7) 

The 2001 water heater rulemaking used data on retail prices to estimate markups. DOE 

did not use the same markup process as in the current rulemaking, however, because commenters 

on the previous rulemaking stated that DOE provided no consistency checks to determine the 

method’s validity, and it did not account for the differences in price associated with different 

technologies. In addition, DOE has adopted a different approach to estimate markups in all of its 

rulemakings conducted in recent years that DOE believes is appropriate because it provides 

consistent estimates based on publicly-available statistics. DOE collected retail price data for 

water heaters to provide a check on its estimated markups. DOE’s average calculated retail price 

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for water heaters is close to the average Internet retail price for typical electric and oil-fired 

storage water heaters, 7 percent lower for gas-fired instantaneous water heaters, and 11 percent 

lower for gas-fired storage water heaters. Given the uncertainty regarding the representativeness 

of the retail price data that DOE collected, DOE considers that its markup method provides 

reasonably good agreement with prices in the market. 

E. Life-Cycle Cost and Payback Period Analyses 

DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual 

conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of 

potential amended energy conservation standards for the three types of residential heating 

products. The LCC represents total consumer expenses during the life of an appliance, including 

purchase and installation costs plus operating costs (expenses for energy use, maintenance, and 

repair). To compute LCCs for the three heating products, DOE discounted future operating costs 

to the time of purchase, then summed those costs over the life of the appliances. The PBP is 

calculated using the change in purchase cost (normally higher) that results from an amended 

efficiency standard, divided by the change in annual operating cost (normally lower) that results 

from the standard. 

DOE measures the changes in LCC and PBP associated with a given efficiency level 

relative to an estimate of base-case appliance efficiencies. The base-case estimate reflects the 

market in the absence of amended mandatory energy conservation standards, including the 

market for products that exceed the current standards. 

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For each set of heating products, DOE calculated the LCC and PBP for a nationally 

representative set of housing units, which were selected from EIA’s Residential Energy 

Consumption Survey (RECS). The preliminary analysis used the 2001 RECS. The analysis for 

today’s proposed rule uses the 2005 RECS. (See http://www.eia.doe.gov/emeu/recs/.) For each 

sampled household, DOE determined the energy consumption and energy price for the heating 

product. By developing a representative sample of households, the analysis captured the 

variability in energy consumption and energy prices associated with the use of residential heating 

products. DOE determined the LCCs and PBPs for each sampled household using a heating 

product’s unique energy consumption and the household’s energy price, as well as other 

variables. DOE calculated the LCC associated with the baseline heating product in each 

household. To calculate the LCC savings and PBP associated with equipment that meets higher 

efficiency standards, DOE’s analysis replaced the baseline unit with a range of more-efficient 

designs. 

EEI stated that not all residential water heaters are installed in homes, and thus DOE 

should modify its analysis to account for product usage and energy pricing in commercial 

establishments. (EEI, No. 40 at p. 5) DOE is unaware of data that show the percentage of 

residential water heater shipments that go to the commercial sector or how those products are 

used in the commercial sector, and the commenter did not provide such data. Therefore, DOE did 

not undertake a separate analysis for such installations. 

Inputs to the calculation of total installed cost include the cost of the product—which 

includes manufacturer costs, manufacturer markups, retailer or distributor markups, and sales 

taxes—and installation costs. Inputs to the calculation of operating expenses include annual 

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energy consumption, energy prices and price projections, repair and maintenance costs, product 

lifetimes, discount rates, and the year that proposed standards take effect. DOE created 

distributions of values for some inputs to account for their uncertainty and variability. 

Probabilities are attached to each value. As described above, DOE used samples of households to 

characterize the variability in energy consumption and energy prices for heating products. For 

the inputs to installed cost, DOE used probability distributions to characterize sales taxes. DOE 

also used distributions to characterize the discount rate and product lifetime that are inputs to 

operating cost. 

The computer model DOE uses to calculate LCC and PBP, which incorporates Crystal 

Ball (a commercially available software program), relies on a Monte Carlo simulation to 

incorporate uncertainty and variability into the analysis. The Monte Carlo simulations randomly 

sampled input values from the probability distributions and household samples. The model 

calculated the LCC and PBP for products at each efficiency level for 10,000 housing units per 

simulation run. 

Table IV.25 summarizes the approach and data DOE used to derive inputs to the LCC 

and PBP calculations. The table provides the data and approach DOE used for the preliminary 

TSD, as well as the changes made for today’s NOPR. The following subsections discuss the 

initial inputs and the changes DOE made to them. 

Table IV.25 Summary of Inputs and Key Assumptions in the LCC and PBP Analyses* 

Inputs Preliminary TSD Changes for the Proposed Rule 

Installed Costs 

Product Cost Derived by multiplying 

manufacturer cost by manufacturer, 

retailer and distributor markups and 

sales tax, as appropriate. 

No change. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Installation Cost Water Heaters: Based on data from 

RS Means and other sources. 

Applied additional cost for space 

constraints and other installation 

situations. 

DHE: Based on data from RS 

Means and DOE’s furnace 

installation model. 

No change. 

Pool Heaters: Based on data from 

RS Means. 

No change. 

Operating Costs 

Annual Energy Use Water Heaters: Used hot water 

draw model to calculate hot water 

use for each household in the 

sample from RECS 2001. 

Calculated energy use using the 

water heater analysis model 

(WHAM). 

No change in approach; sample and 

data updated using RECS 2005. 

DHE: Based on sample and data 

from RECS 2001. 

No change in approach; sample and 

data updated using RECS 2005. 

Pool Heaters: Based on sample and 

data from RECS 2001. 

No change in approach; sample and 

data updated using RECS 2005. 

Energy Prices Electricity: Based on EIA’s 2006 

Form 861 data. 

Natural Gas: Based on EIA’s 2006 

Natural Gas Navigator. 

Variability: Regional energy prices 

determined for 13 regions. 

Electricity: Updated using data 

from EIA’s 2007 Form 861 data 

and EIA’s Form 826. 

Natural Gas: Updated using EIA’s 

2007 Natural Gas Navigator. 

Variability: No change. 

Energy Price Trends Forecasted using EIA’s AEO2008. Forecasts updated using EIA’s 

AEO2009. 

Repair and 

Maintenance Costs 

Water Heaters: Based on RS Means 

and other sources. 

Updated various repair costs. 

DHE: Based on RS Means and 

other sources. 

Updated various repair costs. 

Pool Heaters: Based on RS Means 

and other sources. 

Updated various repair costs. 

Present Value of Operating Cost Savings 

Product Lifetime Water Heaters: Based on range of 

lifetimes from various sources. 

Variability and uncertainty: 

characterized using Weibull 

probability distributions. 

Revised average lifetimes for gasfired and electric storage water 

heaters. 

Set lifetime of oil-fired storage 

water heater equal to that of gasfired storage water heater. 

DHE: same as for water heaters No change. 

Pool Heaters: same as for water 

heaters 

Average lifetime increased from 6 

years to 8 years 

Discount Rates Approach based on the cost to 

finance an appliance purchase. 

Primary data source was the 

Federal Reserve Board’s SCF** for 

1989, 1992, 1995, 1998, 2001, and 

2004. 

No change in approach; added data 

from 2007 SCF.** 

Compliance Date of Water heaters: 2015. No change. 

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EE-2006-STD-0129 COMMENT 56.1
New Standard DHE and Pool Heaters: 2013. 

* References for the data sources mentioned in this table are provided in the sections following the table or in
 

chapter 8 of the NOPR TSD. 

** Survey of Consumer Finances. 

1. Product Cost 

To calculate consumer product costs, DOE multiplied the manufacturer selling prices 

developed in the engineering analysis by the supply-chain markups described above (along with 

sales taxes). DOE used different markups for baseline products and higher-efficiency products, 

because the markups estimated for incremental costs differ from those estimated for baseline 

models. 

2. Installation Cost 

The installation cost is the total cost to the consumer to install the equipment, excluding 

the marked-up consumer product price. Installation costs include labor, overhead, and any 

miscellaneous materials and parts. 

a. Water Heaters 

In its preliminary analysis, DOE included several installation costs that reflect the space 

constraints on water heaters having thicker insulation. DOE assumed that major modifications 

for replacement installations would occur 40 percent of the time for water heaters with 3 inches 

or greater insulation. The analysis included costs for modifications such as removing door jams 

or incorporated strategies such as installing a smaller tank plus a tempering valve. To estimate 

the fraction of households that would require various modifications, DOE used the water heater 

location determined for each sample household. DOE determined the location using information 

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EE-2006-STD-0129 COMMENT 56.1
from the 2005 RECS, which reports whether the house has a basement, whether the basement is 

heated or unheated, and the presence or absence of a garage, crawlspace, or attic. 

DOE received several comments on the space constraints for water heaters with increased 

insulation thicknesses. AHRI stated that the analysis does not fully recognize the size constraints 

on water heaters that have increased insulation. (AHRI, No. 33 at p. 2) For example, AHRI 

questioned DOE’s assumption that space constraints do not apply if the floor area of a house is 

more than 1,000 square feet. (AHRI, No. 43 at p. 4) Rheem and AHRI stated that DOE should 

consider the space constraints of water heaters installed in attics. (Rheem, No. 49 at p. 2; AHRI, 

No. 43 at p. 4) Rheem stated that space constraints render larger products economically and 

technically infeasible. (Rheem, No. 49 at p. 1) EEI stated that DOE should consider the effect of 

adding insulation to electric storage water heaters and the issue of space constraints in 

replacement situations. (EEI, No. 40 at p. 4) PG&E, San Diego Gas and Electric (SDG&E), and 

SoCal Gas stated that if the diameter of a water heater is increased by 2 inches, installation 

becomes unworkable in highly constrained spaces. (PG&E, SDG&E, and SoCal Gas, No. 38 at 

p. 3) 

A.O. Smith stated that many closets and cabinets do not have adequate clearance to 

accommodate larger-diameter water heaters. It stated that many electric storage water heaters 

cannot accept larger-diameter tanks without modifying the installation. A.O. Smith added that in 

the South, many water heater installations are in attics, and larger water heaters may not fit 

between the two ceiling joists in the pull-down staircase to the attic. A.O. Smith suggested that 

DOE’s analysis should increase the number of installations that would require modification or 

the use of a small water heater with a tempering valve.(A.O. Smith, No. 37 at pp. 1–2) 

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EE-2006-STD-0129 COMMENT 56.1
 Inresponse to the above comments, for the NOPR analysis, DOE further investigated the 

issue of space constraints for water heaters with insulation thickness of 2 inches and above. 

Based upon the results of this inquiry, DOE expanded the percentage of installations that may 

have space constraints, including houses having a floor area of more than 1,000 square feet. For 

approximately 20 percent of replacement installations, DOE applied major modifications 

(removal of door jamb at an average cost of $191) for water heater designs with 2-inch 

insulation. For another 20 percent of replacement installations, DOE assumed that the household 

would install a smaller water heater and use tempering and check valves (at an average cost of 

$142). DOE also added a cost for extra labor needed to install water heaters in attics, and for 

installing larger water heaters (66 gallon and larger). 

AHRI stated that the additional cost of $22 for tempering and check valves associated 

with installing an electric water heater is significantly understated. (AHRI, No. 43 at p. 4) In 

clarification, DOE incorporated an average cost of $142 for tempering and check valves for 

homes where they would be needed. The value of $22 is an average over all homes, including 

those where tempering and check valves are not necessary. 

AHRI stated that a survey conducted by the SEGWHAI project in California determined 

that the average installation cost for a standard gas-fired storage water heater approached $1,000, 

which is higher than DOE’s estimated average. (AHRI, Public Meeting Transcript, No. 34.4 at 

pp. 84-85) DOE used RS Means and installation cost data to derive a nationally-representative 

range of installation costs, whereas the SEGWHAI data pertain only to California. Because of 

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EE-2006-STD-0129 COMMENT 56.1
the need to set a national standard, DOE has continued to rely on RS Means as a recognized and 

commonly used source for estimating such costs. 

AHRI also stated that DOE underestimated the cost of condensing gas-fired storage water 

heaters. AHRI said that SEGWHAI estimated an installed cost of $4,000, compared to DOE's 

estimate of $1,782. The SEGWHAI estimate refers to a large-capacity commercial condensing 

unit having an EF of 0.84. For a condensing gas-fired storage water heater having an EF of 0.82 

(a more appropriate comparison for the residential units at issue here), SEGWHAI proposes a 

$1,700 Tier 2 cost, which is comparable to the estimated installed cost of the 0.77 EF unit 

considered in DOE’s analysis. 

NEEA and NPCC questioned why DOE included the cost of installing an electrical outlet 

in the cost of gas-fired storage water heaters. (NEEA and NPCC, No. 42 at p. 8) In response, 

DOE understands that the baseline gas-fired water heater requires no electricity. If such a model 

is replaced with a higher-efficiency unit, however, an electrical outlet installation may be 

required. 

The American Gas Association (AGA) stated that the installation costs for gas-fired 

storage water heaters having an EF greater than 0.62 need to include the cost of stainless steel 

vent connectors. (AGA, No. 44 at p. 3) DOE agrees that some models having an EF greater than 

0.62 will require stainless steel vent connectors, but only if the recovery efficiency (RE) is 78 

percent or higher. For the NOPR analysis, DOE added the cost of stainless steel vent connectors 

for all natural draft gas-fired water heaters that have an RE of 78 percent or higher. 

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A.O. Smith stated that the installation costs for electric storage water heaters at all 

efficiency levels are overstated by a factor of two. (A.O. Smith, No. 37 at p. 6) In response, DOE 

acknowledges that the average installation costs for electric storage water heaters presented in 

the preliminary TSD were too high. Consequently, for the NOPR analysis, DOE updated the 

labor cost. Instead of using national-average costs, DOE used region-specific costs, which yield a 

lower national-average cost for electric water heaters. DOE also reduced the labor time by one 

half hour. The result is that the average installation cost for electric storage water heaters is 

approximately half as much as the cost estimated in the preliminary analysis. 

AGA stated that DOE’s cost estimate for providing electrical supply to water heaters that 

incorporate electronic ignition is too low. AGA stated that DOE should use the cost estimates in 

other rulemakings for installations where electrical service is needed. (AGA, No. 44 at pp. 3-4) 

DOE’s estimated cost for adding electrical supply for water heaters requiring electronic ignition, 

which is based on RS Means, is similar to the costs DOE used in the rulemaking for cooking 

products (74 FR 16040 (April 8, 2009)) and other rulemakings for installations that require 

electrical service. 

Rheem stated that the cost of installing gas-fired, electric storage, and low-boy electric 

water heaters in manufactured housing units, where water heaters are typically installed under a 

counter, would be affected at higher efficiency levels. (Rheem, No. 49 at p. 2) As discussed 

previously, DOE considered and accounted for the cost of accommodating space constraints that 

may arise in some replacement applications when higher-efficiency units with thicker insulation 

are installed. In the specific case of manufactured homes, for the NOPR DOE increased the 

fraction of installations assumed to have space constraints by two-fold. 

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Table IV.26 shows the average installation costs used in the NOPR analysis for selected 

efficiency levels considered for gas-fired and electric storage water heaters. (Installation costs for 

electric storage water heaters with heat pump design are further discussed below.) The costs 

vary with the location of the water heater. For electric resistance water heaters, the average 

installation costs at different efficiency levels are similar for basement and garage locations, but 

they are higher for water heaters of 0.95 EF for indoor and attic locations. For gas-fired water 

heaters, the average installation cost is much higher for 0.67 EF and 0.80 EF units because there 

is a change from metal Category I vents to plastic Category IV vents. 

Table IV.26 Average and Incremental Installation Costs for Electric and Gas-Fired Storage 

Water Heaters 

Electric Gas-fired 

EF Description 

Average 

Installation 

Cost 

(2008$)* 

Incremental 

Installation 

Cost 

(2008$) 

EF Description 

Average 

Installation 

Cost 

(2008$)* 

Incremental 

Installation 

Cost 

(2008$) 

0.90 1.5 in 

(Baseline) $222 - 0.59 Pilot, 1 in $576 -

0.91 

and 

0.92 

2 and 2.25 

in $241 $19 0.62 Pilot, 1.5 in $595 $19 

0.93 

and 2.5 and 3 in $259 $36 0.63 Pilot, 2 in $621 $46 

0.94 

0.95 4 in $282 $60 0.67 Power vent, 

2 in $808 $233 

0.80 Condensing, 

2 in $828 $252 

*Average installation cost represents the weighted average cost for replacement and new construction applications. 

DOE received several comments on installation costs for heat pump water heaters. In its 

preliminary analysis, DOE applied a distribution of costs for heat pump water heater installations 

in enclosed spaces, including situations where modifications would be required. In its comments 

on the preliminary analysis, GE stated that in general, heat pump water heaters should be no 

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EE-2006-STD-0129 COMMENT 56.1
more difficult or expensive to install than standard electric storage water heaters, because they 

will require the same electrical and plumbing connections. GE noted that its heat pump water 

heater occupies a footprint similar to that of a standard unit. GE stated, however, that it may be 

difficult to install a heat pump water heater in a confined space that lacks ventilation. (GE, No. 

51 at p. 2) A.O. Smith commented that the requirements for providing adequate air flow for a 

heat pump water heater may be higher than DOE estimated. (A.O. Smith, No. 37 at p. 1) NEEA 

and NPCC stated that DOE should use a distribution of costs to encompass heat pump water 

heater installations that require building modifications. (NEEA and NPCC, No. 42 at p. 8) 

DOE agrees that installation of heat pump water heaters in enclosed spaces may require 

modifications to allow for adequate ventilation. Accordingly, for half of indoor replacement 

installations, DOE added a cost for installing a fully-louvered closet door to permit adequate air 

flow for the operation of the unit. It used a distribution of costs that averages $344. In addition, 

DOE assumed that the household facing space constraints would install a smaller water heater 

and use tempering and check valves in 20 percent of replacement installations. 

DOE’s preliminary analysis considered the fact that heat pump water heaters draw heat 

from the space in which they are located and release cooled air. Thus, when such a water heater 

is located in a conditioned space, its use affects the load that the home’s space heating and air 

conditioning equipment must meet. DOE accounted for the additional energy costs that affected 

households would incur. 

Southern commented that DOE had not adequately considered the issues Southern 

previously raised regarding installing heat pump water heaters to replace existing electric water 

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EE-2006-STD-0129 COMMENT 56.1
 

heaters, which included the need to provide venting of cooled air released by such units. The 

commenter also stated that for new construction installations in multifamily housing units, 

interior locations are preferred for installing mechanical systems. Southern commented that a 

heat pump water heater could be installed indoors, but it would be costly to provide supply and 

return vents to the exterior. (Southern, No. 50 at pp. 2–3) 

In the NOPR analysis, DOE continued to assume that many households that would be 

affected by indoor operation of a heat pump water heater would not want to incur the cost of a 

venting system, and would instead operate their heating and cooling systems to compensate for 

the effects of the heat pump water heater. However, DOE agrees that some households would 

prefer to install a venting system. DOE estimated that those households that would experience 

significant indoor cooling due to operation of the heat pump water heater in the heating months 

(i.e., the heat pump cooling load is greater than 10 percent of the space heating load) would have 

a venting system installed to exhaust and supply air. Using calculations specific to each 

household in the subsample for electric water heaters, DOE estimated that 40 percent of 

replacement installations would incur this cost, which averages $460. 

Table IV.27 shows the average additional installation costs that DOE applied for heat 

pump water heaters (relative to the baseline electric storage water heater), along with the fraction 

of installations receiving each specific cost. 

Table IV.27 Additional Installation Costs for Heat Pump Water Heaters 

Installation Cost 

Description 

Assignment to Installations Share of 

Installations 

Impacted 

Average 

Cost* 

Additional Labor All installations 100% $69 

Closet Door Redesign due to 50% of indoor and heated basement 16% $344 

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EE-2006-STD-0129 COMMENT 56.1
 

Space Constraints replacement installations 

Tempering Valve Addition 

due to Space Constraints 

20% of all replacement installations 16% $142 

Condensate Pump 25% of all replacement installations 20% $154 

Venting Adder** 40% of replacement installations 

with significant cooling load effects 

10% $460 

Larger Drain Pan All installations 100% $2 

* Labor cost hours from 2008 RS Means; material cost from 2008 RS Means; condensate pump from retailer web 

sites; drain pan from 2001 TSD.
 

**All households experiencing significant cooling load effects in the heating season are either assigned the venting
 

adder or the extra cost for space heating is included in the energy use calculations. 

In summary, for the NOPR analysis, DOE used a distribution of installation costs for heat 

pump water heaters ranging from $213 to $1,918. The estimated average installation cost for a 

heat pump water heater (at 2.00 EF), weighted over replacement and new construction 

applications, is $446. This compares to average costs of $222 for a baseline (0.9 EF) electric 

storage water heater and $282 for a 0.95 EF electric storage water heater. For further details on 

DOE’s derivation of installation costs for electric storage water heaters, please see chapter 8 of 

the NOPR TSD. DOE requests comments on its analysis of installation costs for water heaters; it 

is particularly interested in comments on its analysis of installation costs for heat pump water 

heaters. This is identified as issue 13 under “Issues on Which DOE Seeks Comment” in section 

VII.E of this NOPR. 

Regarding installation of gas-fired instantaneous water heaters, A.O. Smith questioned 

whether DOE considered the need for the pressure relief valve and drain pans that manufacturers 

and codes require. (A.O. Smith, No. 37 at p. 6) Noritz stated that gas-fired instantaneous water 

heaters that achieve an EF of 0.83 or higher require condensate drains and some method of 

treating the condensate so that it can be disposed of, further adding to the installation cost. 

(Noritz, No. 36 at pp. 1–2) For the NOPR analysis, DOE included the cost and installation of a 

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drain pan and pressure relief valve, as well as a filter for treating the condensate for units with an 

EF of 0.83 or higher. 

A.O. Smith questioned whether DOE included the cost to replace a gas line with a larger 

line when installing gas-fired instantaneous water heaters in replacement applications. (In some 

cases the existing gas line is not adequate to accommodate the higher gas input required by the 

instantaneous water heaters.) A.O. Smith also stated that the analysis should include the costs 

related to extreme installation situations for gas-fired instantaneous water heaters, as DOE did 

for the costs of adding tempering valves or modifying door jams for electric storage water 

heaters. (A.O. Smith, No. 37 at p. 6) In response, DOE did not include the costs of such 

measures for gas-fired instantaneous water heaters, because in those cases where these measures 

would be required, the extremely high cost would likely lead households to purchase a storage 

water heater instead. 

AHRI stated that DOE should reconcile its cost estimates for installing instantaneous 

water heaters with the SEGWHAI estimate, which is at least $200 to $300 more than DOE's 

estimate. (AHRI, Public Meeting Transcript, No. 34.4 at p. 168) As noted above, the SEGWHAI 

data pertain only to California, where labor costs are higher than the national average. For the 

NOPR, DOE used RS Means and installation cost data to derive region-specific installation 

costs. 

b. Direct Heating Equipment 

DOE used the approach in the 1993 TSD to calculate installation costs for baseline direct 

heating equipment for its preliminary analysis, as it believes that the factors affecting DHE 

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installation are largely unchanged, and more recent data are not available. For gas wall gravity, 

floor, and room direct heating equipment, DOE increased installation costs for designs that 

require electricity. DOE made this adjustment for the replacement market only, because wiring is 

considered part of the general electrical work in new construction. DOE did not receive 

comments on the installation costs for direct heating equipment, so it maintained the same 

approach for the NOPR analysis. For further details on DOE’s derivation of installation costs for 

direct heating equipment, please see chapter 8 of the NOPR TSD. 

c. Pool Heaters 

DOE developed installation cost data for the baseline pool heater in its preliminary 

analysis using RS Means and information in a consultant’s report. DOE incorporated additional 

installation costs for designs involving electronic ignition and/or condensing. DOE did not 

receive comments on the installation costs for pool heaters, so it maintained this earlier approach 

for the NOPR analysis. For further details on DOE’s derivation of installation costs for pool 

heaters, please see chapter 8 of the NOPR TSD. 

3. Annual Energy Consumption 

DOE determined the annual energy use in the field for the three types of heating products 

based on data obtained from RECS. DOE supplemented this data as required for each heating 

product, as discussed below. 

a. Water Heaters 

DOE calculated the annual energy consumption of water heaters in the sample 

households by considering the primary factors that determine energy use: (1) hot water use per 

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household; (2) energy efficiency of the water heater; and (3) operating conditions other than hot 

water draws. DOE used a hot water draw model to calculate hot water use for each household in 

the sample. The characteristics of each water heater’s energy efficiency were obtained from the 

engineering analysis. DOE developed water heater operating conditions (other than hot water 

draws) from weather data and other relevant sources. DOE used a simplified energy equation, the 

water heater analysis model (WHAM), to calculate the energy use of water heaters. WHAM 

accounts for a range of operating conditions and energy efficiency characteristics. DOE’s 

approach is explained in further detail in chapter 7 of the NOPR TSD. 

To estimate hot water use by each sample household, DOE used a hot water draw model 

that accounts for the key factors that determine such use, such as the number and ages of the 

people who live in the household, the way they consume hot water, the presence of hot-waterusing appliances, the tank size and thermostat set point of the water heater, and the climate in 

which the residence is situated. In general, households with higher hot water use have water 

heaters with larger storage volume. 

DOE received several comments on hot water use. ACEEE stated that the hot water draw 

model is insufficiently supported by field data. (ACEEE, Public Meeting Transcript, No. 34.4 at 

p. 178) NEEA and NPCC stated that DOE should provide more detail on the draw model and 

explain how it has been validated and calibrated. (NEEA and NPCC, No. 42 at p. 7) DOE 

acknowledges that insufficient field data are currently available to fully validate the draw model. 

However, Electric Power Research Institute (EPRI) developed the draw model based on a 

nationally representative sample of households. It is DOE’s understanding that this widely-used 

model, which has been updated several times to account for changes in household hot water use, 

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EE-2006-STD-0129 COMMENT 56.1
is the most credible tool available for modeling daily hot water use. The draw model is described 

in detail in appendix 7-B of this NOPR’s TSD, as well as in the reports referenced in chapter 7 of 

the TSD. 

NEEA and NPCC stated that current estimates of hot water use in the Pacific Northwest 

are about 20 percent higher than DOE's estimate of national-average daily use. (NEEA and 

NPCC, No. 42 at p. 7) Household hot water use differs among geographic regions for various 

reasons. DOE’s analysis for Census Division 9 (which includes the Pacific Northwest) shows 

average hot water use by electric water heaters (47.9 gal/day) as being higher than the average 

national value (41.9 gal/day). Therefore, DOE believes that the estimates used in its analysis are 

reasonable. 

EEI stated that DOE should consider the effects on hot water use of smaller households 

and the lower hot water use of new dishwashers and clothes washers, which are installed in both 

new and existing homes. (EEI, No. 40 at p. 6) For the NOPR, DOE used the most recent data 

available regarding household characteristics (from the 2005 RECS). In addition, DOE modified 

the hot water draw model to account for the impact of the efficiency standards that recently 

became effective for dishwashers and clothes washers. 

BWC commented that hot water usage for gas-fired instantaneous water heaters may be 

different than for storage water heaters, although it has no evidence to support this idea. (BWC, 

No. 46 at p. 1) GE and Noritz stated that they are unaware of any data that support the 

assumption that consumers use more hot water with a gas-fired water heater. (GE, No. 51 at p. 3; 

Noritz, No. 36 at p. 2) Because DOE found no usable data showing greater or lesser hot water 

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use for instantaneous water heaters than for storage water heaters, it estimated that households 

use the same volume of hot water with both types of water heaters. 

Commenting on the calculation of energy use, Bock stated that WHAM does not 

accurately estimate energy consumption. (Bock, No. 53 at p. 2) In response, DOE notes that the 

WHAM equation has been validated against field data and that the comparison shows that 

WHAM results correlate well. 

NEEA and NPCC stated that the estimated energy use results could be verified with submetered (i.e., measured) field data. (NEEA and NPCC, No. 42 at p. 7) DOE found that the submetered field data for water heaters are insufficient to represent the range of national water 

heater energy use patterns. Therefore, DOE did not undertake such verification of its energy use 

estimates. 

AHRI and Bock stated that the estimates of annual energy consumption for gas- and oilfired water heaters are about 65 percent of test procedure usage specifications, whereas for 

electric water heaters it is 55 percent. AHRI questioned why the analysis appears to be using 

different field use assumptions for electric water heaters. (AHRI, No. 33 at p. 2; Bock, No. 53 at 

p. 2) In response, DOE’s analysis used 2005 RECS data to estimate the energy consumption of 

water heaters in use by U.S. households. DOE’s analysis thereby incorporates assumptions about 

operating conditions that are appropriate for each water heater type. For example, DOE 

determined that the average annual ambient temperature is higher for the stock of electric water 

heaters than for the stock of gas-fired water heaters. This difference contributes to the lower 

average energy use for electric water heaters. 

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A.O. Smith stated that the analysis of ambient air temperature effects does not include 

water heaters installed in attics in the South, and that the temperature derivation formulas are not 

applicable to attic installations, where solar gain can bring temperatures to ambient plus 40 °F in 

summer. (A.O. Smith, No. 37 at pp. 5–6) DOE’s analysis included water heaters installed in 

attics and accounted for the range of temperatures found in such locations. 

The energy efficiency and consumption of heat pump water heaters depend on ambient 

temperature. The equation DOE used to determine the energy consumption of heat pump water 

heaters is similar to the WHAM equation, but it modulates the recovery efficiency by applying a 

performance adjustment factor that is a function of the average ambient temperature. GE stated 

that because lower ambient temperatures will affect the performance of both heat pump and 

storage water heaters, DOE should use universally applied conditions to compare products. (GE, 

No. 51 at p. 2) DOE’s energy calculations for heat pump and storage water heaters accounted for 

the effects of lower ambient temperatures. Heat pump water heaters are more affected by air 

temperature because the air provides the heat to warm the water. 

As stated previously, DOE assumed that many households that would be affected by 

indoor operation of a heat pump water heater would not want to incur the cost of a venting 

system, and would instead operate their space heating or cooling system to compensate for the 

effects of the heat pump water heater. For each such home, DOE estimated the impact on space 

heating only during heating months (i.e., when indoor temperature is at least 10 degrees greater 

than the average outdoor temperature), and the impact on air conditioning only during cooling 

months (i.e., when indoor temperature is at least 5 degrees less than the average outdoor 

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temperature). For each affected household in the electric water heater sub-sample, DOE included 

such indirect energy use in its calculation of the energy consumption of a heat pump water 

heater. 

BWC stated that the assumed rated capacity (Pon) of 500 watts and cooling capacity of 

3,500 Btu/h are not correct for all heat pump water heaters. (BWC, No. 46 at p. 2) For the 

preliminary analysis, DOE based those values on information available in AHRI’s 2007 

Consumers’ Directory. For the NOPR, DOE created a distribution of values for Pon and cooling 

capacity that represent a range of heat pump water heater designs. 

To calculate the energy use of gas-fired instantaneous water heaters, DOE used the same 

approach as for storage water heaters, modified to account for the absence of a tank. For the 

preliminary analysis, DOE applied a performance adjustment factor to account for evidence that 

the rated energy efficiency of instantaneous water heaters overstates actual performance, as 

reported in a study of instantaneous water heater installations conducted for the California 

Energy Commission (CEC). See Davis Energy Group. Measure Information Template: Tankless 

Gas Water Heaters (May 18, 2006); 

http://www.energy.ca.gov/title24/2008standards/prerulemaking/documents/2006-05­

18_workshop/2006-05-11_GAS_WATER.PDF. The adjustment factor effectively increases the 

calculated energy use of a gas-fired instantaneous water heater by 8.8 percent. 

A.O. Smith noted its strong support for incorporating results from the CEC study to 

account for performance drop-off at small draw volumes. Because it requires 5 to 20 seconds for 

a gas-fired instantaneous water heater to heat up, 1 gallon of cold water can be wasted at the 

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beginning of every water draw. (A.O. Smith, No. 37 at pp. 1, 5) ACEEE, PG&E, SDG&E, 

SoCal Gas, and AGA also support applying a performance adjustment. (ACEEE, No. 35 at p. 7; 

PG&E, SDG&E, and SoCal Gas, No. 38 at p. 4; AGA, No. 44 at p. 3) BWC expressed support 

for applying the 8.8-percent adjustment factor to gas-fired instantaneous water heaters, noting 

that its testing indicates that this number may be a little low. (BWC, No. 46 at p. 1) AHRI 

disagreed with applying an 8.8-percent factor. AHRI stated that the CEC study obtained its field 

data from one two-person household, which does not support a technically sound analysis. 

(AHRI, No. 33 at p. 2) Bock, GE, Noritz, and Rheem agreed. (Bock, No. 53 at p. 2; GE, No. 51 

at p. 3; Noritz, No. 36 at p. 2; Rheem, No. 49 at pp. 6–7) 

For the NOPR analysis, the performance adjustment factor DOE developed to capture the 

field energy use of gas-fired instantaneous water heaters is a probability distribution. The factor 

changes based on household hot water consumption, rather than on a fixed value that may 

represent only a fraction of households. The 8.8-percent adjustment factor DOE used for the 

preliminary analysis became the upper value in the distribution DOE used for the NOPR. The 

rest of the range was derived from a Gas Technology Institute (GTI) study that calculated an 

energy use reduction (adjustment) factor as a function of the volume of water gas-fired 

instantaneous water heaters use daily. 

Southern stated that the draws in the hot water draw model should ideally be shorter for 

instantaneous water heaters. (Southern, Public Meeting Transcript, No. 34.4 at p. 194) ACEEE 

stated that PG&E and Consumers Union have performed studies on alternative draw patterns for 

gas-fired instantaneous water heaters that are more reflective of daily use. (ACEEE, Public 

Meeting Transcript, No. 34.4 at pp. 195–196) In response, DOE’s performance adjustment factor 

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accounts for a range of draw patterns associated with gas-fired instantaneous water heaters. 

Accordingly, DOE maintains its existing approach. 

b. Direct Heating Equipment 

For the preliminary analysis of LCC and PBP, DOE estimated energy consumption of 

direct heating equipment in functioning housing units. To represent actual households likely to 

purchase and use direct heating equipment, DOE developed a household sample from the 2001 

RECS. DOE did not receive any comments on its approach for estimating energy consumption of 

direct heating equipment. Therefore, for the NOPR, DOE used the same approach, but it used a 

household sample drawn from the 2005 RECS. 

c. Pool Heaters 

For the preliminary analysis of LCC and PBP, DOE estimated energy consumption of 

pool heaters at functioning housing units. To represent actual households likely to purchase and 

use pool heaters, DOE used a household sample from the 2001 RECS. For the NOPR, DOE used 

a household sample drawn from the 2005 RECS. 

AHRI stated that DOE’s estimate of the annual energy use of a typical residential pool 

heater is overestimated by a factor of two. It said that DOE’s estimated annual energy use of 53.6 

MBtu [one thousand British thermal units] based on an energy use of 250 kBtu/h at 78 percent 

thermal efficiency (a baseline unit) represents 214 hours of operation annually. AHRI mentioned 

a CEC study that determined that gas pool heaters were used on average 104 hours per year, and 

it commented that the LCC should be recalculated based on that value. (AHRI, No. 43 at p.5) 

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In response, DOE notes that the CEC study mentioned is based on a single study 

conducted in the early 1990s. For the NOPR, DOE did revise the range of operating hours used 

its analysis, although it relied on more recent data than the referenced CEC study. Instead, DOE 

calculated the pool heater operating hours using the estimated pool heater heating load for each 

sample household from the 2005 RECS. The average hours of operation in the NOPR analysis is 

149 per year, which results in an annual energy use of 38 MBtu for a 250 kBtu/hr baseline unit 

operating at 78 percent thermal efficiency. 

d. Rebound Effect 

A rebound effect refers to increased energy consumption resulting from actions that 

increase energy efficiency and reduce consumer costs. For its preliminary analysis, DOE 

searched the literature on the rebound effect related to the three types of heating products, and 

also considered how EIA’s NEMS incorporates a rebound effect. 

For water heaters, DOE reviewed a summary of studies on the rebound effect, which 

concluded that “technical improvements for residential hot water heating will be between 60 and 

90 percent effective in reducing energy consumption for this service” (implying a rebound effect 

of 10 to 40 percent). See L.A. Greening, D.L. Greene, C. Difiglio, Energy Efficiency and 

Consumption: The Rebound Effect, Energy Policy, 28(6-7): pp. 389-401. DOE found that NEMS 

does not incorporate a rebound factor, however. Balancing these findings from the literature with 

the zero rebound effect used in NEMS, DOE decided that a rebound effect of 10 percent was 

reasonable for water heaters. 

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A.O. Smith supported the use of a 10-percent rebound effect for water heaters. (A.O. 

Smith, No. 37 at p. 2) It added that there is an additional rebound effect for gas-fired 

instantaneous water heaters because of the promotion of “unlimited” or “endless” hot water. 

(A.O. Smith, No. 37 at p. 7) NEEA and NPCC suggested that DOE ignore the rebound effect 

except in the case of the highest candidate standard levels, as adoption of the lower efficiency 

levels would not provide consumers with noticeable savings in energy bills. (NEEA and NPCC, 

No. 42 at p. 8) ACEEE stated that it does not believe that the peer-reviewed literature supports 

assertions of large rebound effects, and the more conservative approach is to ignore them for 

these products. (ACEEE, No. 35 at p. 7) 

As stated above, the literature does indicate the presence of a rebound effect of 10 to 40 

percent for water heaters. Given that NEMS does not incorporate a rebound effect for water 

heating, and that the comments received on the preliminary analysis support a rebound effect of 

10 percent or lower, DOE believes that using a value at the lower end of the range found in the 

literature (i.e., 10 percent) is reasonable and has incorporated such an effect in its analyses for 

this NOPR. 

4. Energy Prices 

For the LCC and PBP, DOE derived average energy prices for 13 geographic areas 

consisting of the nine U.S. Census divisions, with four large States (New York, Florida, Texas, 

and California) treated separately. For Census divisions containing one of these large States, 

DOE calculated the regional average excluding the data for the large State. 

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DOE estimated residential electricity prices for each of the 13 geographic areas based on 

data from EIA Form 861, “Annual Electric Power Industry Database,” and EIA Form 826, 

“Monthly Electric Utility Sales and Revenue Data.” DOE calculated an average annual regional 

residential electricity price by: (1) estimating an average residential price for each utility (by 

dividing the residential revenues by residential sales); and (2) weighting each utility by the 

number of residential consumers served in that region (based on EIA Form 861). DOE calculated 

an average monthly regional electricity price by first calculating monthly prices for each State, 

and then calculating a regional price by weighting each State in a region by the number of 

consumers in that State using EIA Form 826. For the preliminary TSD, DOE used EIA data from 

2006. The NOPR analysis used the data from 2007. 

DOE estimated average residential natural gas prices in each of the 13 geographic areas 

based on data from EIA’s Natural Gas Navigator. See Energy Information Administration, 

Natural Gas Navigator, 2009; http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm. 

DOE calculated an average natural gas price by first calculating the price for each State, and then 

calculating a regional price by weighting each State in a region by the number of consumers in 

that State. This method differs from the method DOE used to calculate electricity prices, because 

EIA does not provide utility-level data on gas consumption and prices. For the preliminary TSD, 

DOE used EIA data from 2006. For today’s proposed rule, DOE used the data from 2007. 

DOE estimated average residential prices for liquefied petroleum gas (LPG) in each of 

the 13 geographic areas based on data from EIA’s State Energy Consumption, Price, and 

Expenditures Estimates. See Energy Information Administration, 2007 State Energy 

Consumption, Price, and Expenditure Estimates (SEDS); 

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http://www.eia.doe.gov/emeu/states/_seds.html. For the preliminary TSD, DOE used data from 

2005. For today’s proposed rule, DOE used the data from 2006. 

DOE estimated average residential prices for oil in each of the 13 geographic areas based 

on data from EIA’s Petroleum Navigator. See Energy Information Administration, Petroleum 

Navigator, December, 2009; 

http://tonto.eia.doe.gov/dnav/pet/pet_cons_821dsta_a_EPD0_VAR_Mgal_a.htm. For the 

preliminary TSD, DOE used data from 2006. For today’s proposed rule, DOE used the data from 

2007. 

To estimate the trends in energy prices for the preliminary TSD, DOE used the price 

forecasts in AEO2008. To arrive at prices in future years, DOE multiplied current average 

regional prices by the forecast of annual average price changes in AEO2008. Because AEO2008 

forecasts prices to 2030, DOE followed past guidelines that EIA provided to the Federal 

Emergency Management Program. DOE used the average rate of change from 2020 to 2030 to 

estimate the price trend for electricity after 2030, and the average rate of change from 2015 to 

2030 to estimate the price trend after 2030 for natural gas, LPG, and oil. For today’s proposed 

rule, DOE used the same approach, but updated its energy price forecasts using AEO2009. DOE 

intends to update its energy price forecasts for the final rule based on the latest available AEO. In 

addition, the spreadsheet tools that DOE used to conduct the LCC and PBP analyses allow users 

to select price forecasts from either AEO’s high-growth scenario or low-growth scenario to 

estimate the sensitivity of the LCC and PBP to different energy price forecasts. 

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Earthjustice stated that DOE must quantify the effect of a CO2 emissions cap on energy 

prices in the LCC analysis. (Earthjustice, No. 47 at p. 4) DOE believes that it would be 

inappropriate to speculate on the form of any Federal carbon control legislation, and the ensuing 

impacts on residential energy prices. Therefore, DOE does not incorporate such impacts into the 

energy price forecasts that DOE used for the NOPR analysis. 

5. Repair and Maintenance Costs 

Repair costs are associated with repairing or replacing components that have failed in the 

appliance, whereas maintenance costs are associated with maintaining the operation of the 

equipment. Determining the repair cost involves determining the cost and the service life of the 

components that are likely to fail. Discussion of repair and maintenance costs for the three types 

of heating products is provided below, along with a summary of public comments on this topic. 

For more information on DOE’s development of repair and maintenance cost estimates, see 

chapter 8 of the NOPR TSD. 

a. Water Heaters 

The repair cost for a water heater reflects the cost for a service call when the product 

fails. There are four design options considered for the gas-fired water heater analysis that may 

encounter repair cost during the lifetime of the water heater: (1) pilot ignition; (2) electronic 

ignition; (3) power vent; and (4) condensing design. The energy efficiency levels that include 

power vent or condensing design encounter both power vent as well as electronic ignition repair 

costs. For each of the above four design options, DOE estimated both an average cost and the 

year in which the repair would, on average, be most likely to occur. 

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AHRI stated that DOE’s analysis of gas-fired water heaters ignored the introduction of 

FVIR designs that require maintenance. (AHRI, No. 43 at pp. 1-2) For the NOPR, DOE added a 

cost for maintaining the FVIR for all gas-fired storage water heaters. 

For the preliminary analysis, DOE determined that there is virtually no maintenance or 

repair associated with conventional electric resistance water heaters. For a heat pump water 

heater, maintenance includes annual cleaning of the air filter and a preventive maintenance cost 

to check the evaporator and refrigeration system. Although the literature suggests that no 

professional help is necessary for this maintenance, DOE believes there are instances in which 

such help is needed. For some locations where the heat pump water heater might be more 

exposed to the outdoor environment, such as garages and crawlspaces, DOE applied a 5-year 

preventative maintenance cost based on experience with heat pump water heater outdoor 

installations in Australia, which has roughly comparable conditions as much of the United States. 

See Rheem Manufacturing Company (Australia), Owners Guide and Installation Instruction: Air 

Sourced Heat Pump Water Heater, 2006; 

http://www.rheem.com.au/images/pdf/owners_heatpump_126524B_0610.pdf. DOE estimated 

that 27 percent of these exposed installations would require this maintenance, based on a survey 

conducted for central air conditioners, which include heat exchangers that operate similarly as 

the evaporator heat exchanger in a heat pump water heater. 

ACEEE recommended that DOE use refrigerator maintenance costs for heat pump water 

heaters because of similarities in the components and operation. (ACEEE, No. 35 at p. 6) A.O. 

Smith stated that the cost for regular and routine maintenance on heat pump water heaters must 

be considered. It added that it is inaccurate to compare a heat pump water heater to a refrigerator 

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due to the much longer duty cycle on a heat pump water heater, the slow recovery time, the need 

for frequent cleaning, and the scale build-up on the water side, which is not an issue with 

refrigerators. (A.O. Smith, No. 37 at p. 8) GE stated that DOE ascribed inappropriate 

maintenance costs to heat pump water heaters, which require no more attention than a standard 

room air conditioner. (GE, No. 51 at p. 2) 

In response, DOE notes that it based its maintenance costs for heat pump water heaters on 

experience in Australia, so it is not necessary to use another appliance as a proxy. DOE 

acknowledges that many heat pump water heaters may require little or no maintenance. 

However, DOE believes that because the field experience with heat pump water heaters is 

limited, it is reasonable to apply a maintenance cost for some installations. As described above, 

DOE applied a 5-year preventative maintenance cost for 27 percent of the installations in garages 

and crawlspaces. 

Regarding repair of conventional electric resistance water heaters, ACEEE stated that 

data may be available on the number of resistive elements that need to be replaced. (ACEEE, 

Public Meeting Transcript, No. 34.4 at p. 211) Based on this comment, for the NOPR, DOE 

added a cost for replacing resistive elements at least once during the lifetime for one-fourth of 

installations. 

For heat pump water heaters, DOE considered the cost of replacing the compressor and 

the evaporator fan and the year in which, on average, they would be expected to fail. DOE used a 

lifetime distribution for the compressor and evaporator fan with an average lifetime of 19 years. 

For the majority of households, the compressor and evaporator fan would likely not fail during 

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the water heater’s lifetime. However, because there is some overlap between the lifetime 

distribution used for the compressor and evaporator fan and the lifetime distribution used for 

electric water heaters (see below), DOE included a compressor and evaporator fan repair cost in 

the appropriate year for some households. DOE requests comments on its analysis of repair and 

maintenance costs for heat pump water heaters. This is identified as issue 14 under “Issues on 

Which DOE Seeks Comment” in section VII.E of this NOPR. 

Regarding repair costs of gas-fired instantaneous water heaters, AGA stated that DOE 

needs to account for incremental design options, particularly electronic ignition maintenance and 

replacement. (AGA, No. 44 at p. 4) In its preliminary analysis, DOE already applied a 

distribution of costs for electronic ignition repair based on RS Means. It maintained the same 

approach for the NOPR analysis. 

For the preliminary analysis, DOE applied a maintenance cost for some gas-fired 

instantaneous water heaters to address the fouling of the heat exchanger from hard water, 

periodic sensor inspections, and filter changes. A.O. Smith stated that $85 per year is too low for 

annual maintenance (de-liming) for gas-fired instantaneous water heaters. (A.O. Smith, No. 37 at 

p. 7) In response, for the NOPR, DOE used a distribution of costs for maintenance of gas-fired 

instantaneous water heaters, not a single cost of $85, and also applied no cost for some 

installations. 

Noritz stated that the basis for including de-liming costs for gas-fired instantaneous water 

heaters is clauses in the warranty, which is standard for all water heaters, so de-liming costs 

should not be included only for gas-fired instantaneous water heaters. (Noritz, No. 36 at p. 2) 

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Noritz stated that the necessity for de-liming varies, so it would be best not to include the cost for 

any class of water heater, but if it is included for gas-fired instantaneous water heaters, DOE 

should account for the fact that it is not necessary for every installation. (Noritz, No. 36 at pp. 2­

3) DOE agrees that de-liming is not necessary for every installation, so in the NOPR analysis, it 

assigned zero cost to a fraction of households. 

For the preliminary analysis, DOE determined that maintenance for oil-fired water 

heaters is most frequently performed under annual maintenance contracts, which typically 

include repair of failed components. DOE estimated the average cost of separate 

maintenance/repair contracts only for water heaters as $153 per year. This mean value comes 

from a collection of annual maintenance contract prices, which were gathered from web sites that 

represent oil-fired product suppliers in the eastern U.S. The same maintenance cost applies to all 

energy efficiency levels. DOE did not receive any comments on this topic, so it maintained the 

same approach for the NOPR analysis. 

Bock stated that DOE did not include the cost of annually flushing oil-fired storage water 

heaters. (Bock, No. 53 at p. 2) For the NOPR, DOE included a cost for flushing the tanks of all 

storage water heaters, including oil-fired storage water heaters. 

b. Direct Heating Equipment 

For the preliminary analysis, DOE determined that maintenance cost data for gas-fired 

furnaces provide a reasonable approximation of maintenance costs for DHE because of the 

similarity in design and operation. DOE derived the costs from a field survey sponsored by 

several gas utilities that estimated the average total service charge (parts, labor, and other 

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charges). See Jakob, F. E., et al., Assessment of Technology for Improving the Efficiency of 

Residential Gas Furnaces and Boilers, 1994. Gas Research Institute. Chicago, IL. Report No. 

GRI-94/0175. DOE used a maintenance frequency of once every 5 years for all direct heating 

equipment. 

DOE determined the repair costs for DHE using an approach that reflects the cost and the 

service life of the components that are likely to fail. The non-condensing designs DOE 

considered that may encounter repair costs during the lifetime of the product include pilot 

ignition, electronic ignition, circulating blower, and induced draft. The repair cost of the 

condensing design includes electronic ignition, circulation blower, and induced draft 

components. DOE did not receive comments on maintenance and repair costs for DHE, so it 

continued to use the existing approach for its NOPR analysis. 

c. Pool Heaters 

For the preliminary analysis, DOE determined that most pool owners do not perform any 

pool heater maintenance except when the heater does not come on. In such situations, the 

maintenance work includes checking controls, cleaning burners, cleaning the heat exchanger, 

starting the heater, and measuring water temperature rise. DOE used an average cost of $351. For 

units employing power vent and condensing design options, maintenance also includes 

measuring combustion differential pressure. For these units, DOE used an average cost of $491 

and estimated that the maintenance occurs on average in the fifth year of the pool heater lifetime. 

Raypak stated that pool heaters need maintenance more than every 5 years due to outdoor 

installation. (Raypak, Public Meeting Transcript, No. 34.4 at p. 215) DOE applied a distribution 

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ranging from 3 to 6 years for pool heater maintenance. Thus, some applications would receive 

maintenance more than once every 5 years. 

Pool heater design options that may encounter repair cost during the lifetime of the pool 

heater include pilot ignition, electronic ignition, and power vents. For each of these, DOE 

estimated the average repair cost and when in the product lifetime such repair would be likely to 

occur. DOE continued to use the above approach for the NOPR analysis. 

6. Product Lifetime 

For the preliminary analysis, DOE used a variety of sources to establish minimum, 

average, and maximum values for the lifetime of each of the three types of heating products. For 

each product class, DOE characterized the product lifetime using a Weibull probability 

distribution that ranged from minimum to maximum lifetime estimates. See chapter 8 of the 

NOPR TSD for further details on the sources DOE used to develop product lifetimes. 

For the preliminary TSD, DOE chose average lifetimes for gas-fired and electric storage 

water heaters based on the values in the middle of each range: 12 years for gas units and 14 years 

for electric units. In the NOPR analysis, DOE found that applying the above values to historic 

shipments resulted in estimates of the stock of gas-fired and electric storage water heaters that 

did not match the data on the stock reported in the Census Bureau’s 2007 American Housing 

Survey (AHS), which covers all housing units in the United States. The estimated stock is too 

small for gas-fired water heaters and too large for electric water heaters. Using an average 

lifetime of 13 years for both gas-fired and electric storage water heaters produces stock estimates 

for 2007 that are close to the stock numbers from the AHS. Furthermore, several sources report a 

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lifetime of 13 years. (See chapter 8 of the NOPR TSD.) Therefore, DOE used an average lifetime 

of 13 years for both gas-fired and electric storage water heaters in its NOPR analysis. 

DOE evaluated whether electric heat pump water heaters have a different lifetime from 

the baseline products. An accelerated durability test of heat pump water heaters conducted by 

Oak Ridge National Laboratory suggests that these units have similar lifetime as standard 

electric resistance storage water heaters. Therefore, DOE used the same lifetime for all efficiency 

levels considered for this product class. 

For gas-fired instantaneous water heaters, DOE used a distribution with 20 years as the 

average lifetime for these units in its preliminary analysis. A.O. Smith stated that a 20-year 

lifetime for gas-fired instantaneous water heaters is too long, and there is not adequate data to 

backup this claim. (A.O. Smith, No. 37 at p. 2) BWC stated that DOE’s average lifetime for gasfired instantaneous water heaters is derived from manufacturer literature and it suggested that 

DOE instead use an independent source for this information. (BWC, No. 46 at p. 2) DOE is not 

aware of and the commenters did not provide any other source of data on the lifetime of gas-fired 

instantaneous water heaters, so it used the same distribution as in the preliminary analysis. 

For oil-fired storage water heaters, DOE used 9 years as the average lifetime. Bock stated 

that oil-fired storage water heaters should have the same lifetime as gas-fired storage water 

heaters because they are identical in material, construction, volume, and storage temperature. 

(Bock, No. 53 at p. 2) For the NOPR analysis, DOE used the same lifetime for oil-fired storage 

water heaters as for gas-fired storage water heaters (i.e., 13 years). 

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For direct heating equipment, DOE used the average, minimum, and maximum lifetime 

values from its 1993 TSD for direct heating equipment because it did not find more recent 

representative data. The average lifetime DOE used for each of the product classes was 15 years. 

DOE did not receive any comments on DHE lifetime, so it continued to use the above values for 

the NOPR. 

For pool heaters, DOE used 8 years as an average lifetime based on the available data. 

DOE did not receive any comments on pool heater lifetime, so it continued to use the above 

value for the NOPR. 

7. Discount Rates 

To establish discount rates for the heating products in the preliminary analysis, DOE 

derived estimates of the finance cost of purchasing these appliances. Because the purchase of 

equipment for new homes entails different costs for consumers than the purchase of replacement 

equipment, DOE used different discount rates for new construction and replacement. See chapter 

8 of this NOPR’s TSD for further details on the development of discount rates for heating 

products. 

DOE estimated discount rates for appliance purchases in new housing using the effective 

real mortgage rate for homebuyers, which accounts for deducting mortgage interest for income 

tax purposes, and an adjustment for inflation. DOE developed a distribution of mortgage interest 

rates using data from the Federal Reserve Board’s “Survey of Consumer Finances” (SCF) for 

1989, 1992, 1995, 1998, 2001, and 2004. For today’s NOPR, DOE added data from the 2007 

SCF. Because the mortgage rates carried by households in these years were established over a 

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range of time, DOE believes they are representative of rates that may apply when amended 

standards take effect. The effective real interest rates on mortgages across the six surveys 

averaged 3.0 percent. 

 DOE’s approach for deriving discount rates for replacement purchases involved 

identifying all possible debt or asset classes that might be used to purchase replacement products, 

including household assets that might be affected indirectly. DOE used data from the surveys 

mentioned above to estimate the average percentages of the various debt and equity classes in the 

average U.S. household portfolios. DOE used SCF data and other sources to develop 

distributions of interest or return rates associated with each type of equity and debt. For today’s 

NOPR, DOE added data from the 2007 SCF. The average rate across all types of household debt 

and equity, weighted by the shares of each class, is 4.8 percent. 

8. Compliance Date of the Amended Standards 

In the context of EPCA, the compliance date is the future date when parties subject to the 

requirements of a new standard must begin to comply. As described in DOE’s semi-annual 

implementation report for energy conservation standards activities submitted to Congress 

pursuant to section 141 of EPACT 2005, a final rule for the three types of heating products that 

are the subject of this rulemaking is scheduled to be completed by March 2010. Compliance with 

amended energy efficiency standards for direct heating equipment and pool heaters is required 

three years after the final rule is published in the Federal Register (in 2013); compliance with 

amended standards for water heaters is required five years after the final rule is published (in 

2015). DOE calculated the LCC for the three types of heating products as if consumers would 

purchase new products in the year compliance with the standard is required. 

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Earthjustice stated that DOE assumes a 5-year lead time to be consistent with the 

requirements in 42 U.S.C. 6295(e)(4)(B), which requires that DOE “publish a final rule no later 

than January 1, 2000 to determine whether standards in effect... should be amended,” and that 

“any such amendment shall apply to products manufactured on or after January 1, 2005.” The 

commenter stated that this assumption is contrary to the structure and purpose of the statute. . It 

also declared that there is no statutory language to deal with the current situation, which involves 

determining a compliance date for a standard that DOE was required to adopt nearly 10 years 

ago. Earthjustice stated that the required publication date and compliance dates have passed, and 

that it is unreasonable to apply the 5-year lead time specified in 42 U.S.C. 6295(e)(4)(B). 

(Earthjustice, No. 47 at p. 5) ASAP stated that DOE’s compliance date of 2015 is arbitrary 

because the law states that compliance with the standard is required by 2005. ASAP stated that 

DOE is obligated to use time as a variable and look at a range of implementation dates for all of 

the standard levels to determine the standard that would best meet the statutory criteria. ASAP 

suggested that DOE analyze a range of compliance dates from 18 months to 8 years after 

publication of the final rule. (ASAP, Public Meeting Transcript, No. 34.4 at pp. 57-58) AHRI 

stated that DOE is obligated to allow five years between the final rule and the compliance date 

for the requirements for water heater products. (AHRI, Public Meeting Transcript, No. 34.4 at 

pp. 60-61) 

In response, DOE notes that the language in 42 U.S.C. 6295(e)(4) specifically states that 

amended standards, if any, shall apply to products manufactured on or after the 36-month period 

beginning on the date such a final rule is published for the first iteration of rulemaking and on or 

after the 60-month period beginning on the date such a final rule is published for the second 

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iteration of rulemaking. (42 U.S.C. 6295(e)(4)(A)-(B)) The language of 42 U.S.C. 6295(e)(4)(B) 

anticipates that a standard will be in place for covered water heaters that are manufactured 

precisely five years after publication of the final rule and prospectively thereafter. DOE believes 

that the time differential, as specified in EPCA, between the publication of the final rule and the 

compliance deadline reflects Congress’s judgment as to what constitutes adequate lead time. 

9. Product Energy Efficiency in the Base Case 

To accurately estimate the percentage of consumers who would be affected by a 

particular standard level, DOE’s analysis considered the projected distribution of product 

efficiencies that consumers purchase under the base case (i.e., the case without new energy 

efficiency standards). DOE refers to this distribution as a base-case efficiency distribution. Using 

the projected distribution of product efficiencies for each heating product, DOE randomly 

assigned a specific product efficiency to each sample household. If a household was assigned a 

product efficiency greater than or equal to the efficiency of the standard level under 

consideration, the LCC calculation shows that this household is not affected by that standard 

level. Each of the three types of heating products is addressed below, including relevant public 

comments and DOE’s response. For further information on DOE’s estimation of base-case 

market shares, see chapter 8 of the NOPR TSD. 

a. Water Heaters 

In its preliminary analysis, DOE estimated the base-case market shares of various energy 

efficiency levels for water heaters in the effective year. DOE began with data on shipments for 

2002-2006 from AHRI, supplemented with data on the number of water heater models at 

different energy efficiency levels reported in AHRI directories and the Federal Trade 

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Commission directory. (See chapter 8 of the NOPR TSD for citations for these data sources.) For 

gas-fired and electric storage water heaters, DOE then estimated the future market impact of the 

ENERGY STAR program. Effective in 2010, the minimum efficiency for the ENERGY STAR 

designation will be 0.67 EF for non-condensing gas-fired storage water heaters, 0.80 EF for 

condensing gas-fired storage water heaters, and 2.0 EF for heat pump water heaters. To estimate 

the base-case market shares of these products, DOE considered the market penetration goals set 

by the ENERGY STAR program. 

For gas-fired instantaneous water heaters, DOE estimated that the base-case market 

shares in 2015 would be equivalent to current shares. In the case of this product, the majority of 

the market (approximately 85 percent of shipments) is already at the ENERGY STAR level, so 

there is limited room for the shares of ENERGY STAR products to increase in the near future. 

For oil-fired storage water heaters, DOE also estimated that the market shares in 2015 would be 

equivalent to current shares, as there has been little change in the past decade. 

Southern and EEI stated that the 5-percent market share DOE projected for heat pump 

water heaters under the base case seems too high. (Southern, Public Meeting Transcript, No. 34.4 

at p. 186; EEI, No. 40 at p. 5) GE stated that based on the expansion of the market for frontloading clothes washers, which was a new higher-efficiency product in the U.S. market with 

higher first cost but much lower operating costs, the predicted 5-percent market share for heat 

pump water heaters is not unreasonable. (GE, Public Meeting Transcript, No. 34.4 at pp. 188– 

189) In response, DOE notes that, consistent with manufacturer predictions, heat pump water 

heaters entered the mass market in 2009. Given the high level of interest in promoting ENERGY 

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STAR-qualified appliances, DOE believes that its projection was reasonable, and it used the 

same market share for the NOPR analysis. 

For oil-fired storage water heaters, Bock stated that the market shares for Efficiency 

Level 5 and 6 are much higher than indicated in the preliminary TSD. (Bock, No. 34.4 at pp. 

187–188) For the NOPR, DOE updated its base-case efficiency distribution to reflect data from 

the March 2009 AHRI directory of certified products, which resulted in a higher market share at 

levels 5 and 6. 

DOE’s projected base-case energy efficiency market shares are shown in Table IV.28. 

These market shares represent the products that households would purchase in 2015 in the 

absence of revised energy conservation standards. 

Table IV.28 Water Heaters: Base-Case Energy Efficiency Market Shares 

Gas Storage Electric Storage Oil Storage Gas-Fired 

Instantaneous 

EF Market 

Share (%) EF Market Share (%) EF Market Share (%) EF Market Share (%) 

0.59 87.2 0.90 36.2 0.53 22.2 0.62 0.3 

0.62 3.0 0.91 25.6 0.54 0.0 0.69 1.8 

0.63 0.9 0.92 8.7 0.56 0.0 0.78 1.0 

0.64 1.2 0.93 19.5 0.58 0.0 0.80 12.2 

0.65 1.4 0.94 2.5 0.60 11.1 0.82 62.9 

0.67 5.3 0.95 2.5 0.62 16.7 0.84 2.8 

0.80 1.0 2.0 4.0 0.66 40.0 0.85 3.8 

2.2 1.0 0.68 10.0 0.92 9.5 

0.95 5.7 

100% 100% 100% 100% 

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b. DHE 

Little is known about the efficiency distribution of direct heating equipment that 

consumers in the United States currently purchase. For the preliminary analysis, DOE estimated 

the market shares of different energy efficiency levels within each product class in the base case 

using data in the March 2007 GAMA directory. DOE did not receive any comments on its 

estimation of base-case market shares for DHE. It employed the same approach for its NOPR 

analysis, but used more recent GAMA data on the number of models at different energy 

efficiency levels. See Gas Appliance Manufacturers Association, Consumer's Directory of 

Certified Efficiency Ratings for Heating and Water Heating Equipment (March 2008); 

http://www.gamanet.org/gama/inforesources.nsf/vAllDocs/Product+Directories?OpenDocument. 

c. Pool Heaters 

No shipments data are available on the distribution of gas-fired pool heaters by energy 

efficiency level. For the preliminary TSD, DOE estimated the market shares of different energy 

efficiency levels in the base-case by using data from the FTC on the number of gas-fired pool 

heater models at different energy efficiency levels as a proxy for shipments. DOE did not receive 

any comments on its estimation of base-case market shares for pool heaters. It employed the 

same approach for the NOPR analysis, but used more recent FTC data on the numbers of models 

at various energy efficiency levels. 

10. Inputs to Payback Period Analysis 

The payback period is the amount of time it takes the consumer to recover the additional 

installed cost of more-efficient products, compared to baseline products, through energy cost 

savings. The simple payback period does not account for changes in operating expense over time 

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or the time value of money. Payback periods are expressed in years. Payback periods that exceed 

the life of the product mean that the increased total installed cost is not recovered in reduced 

operating expenses. 

The inputs to the PBP calculation are the total installed cost of the equipment to the 

customer for each efficiency level and the annual (first-year) operating expenditures for each 

efficiency level. The PBP calculation uses the same inputs as the LCC analysis, except that 

energy price trends and discount rates are not needed. 

NEEA and NPCC stated that that they are concerned about how the payback period was 

calculated for efficiency level 3 for gas-fired instantaneous water heaters (0.80 EF) because of 

the lengthy payback period. (NEEA & NPCC, No. 42 at p. 2) In response, DOE notes that almost 

the entire market is at CSL 3 or higher. Therefore, the PBP that DOE calculated applies only to 

the very few households that would be affected by a standard at this level. There is a significant 

cost differential in going from CSL 1 and 2 to CSL 3, which leads to very high PBPs for the 

affected households. 

11. Rebuttable-Presumption Payback Period 

The PBP analysis helps to determine whether the 3-year rebuttable presumption of 

economic justification applies—that is, whether the purchaser will recover the higher installed 

cost of more-efficient equipment through lowered operating costs within 3 years. (42 U.S.C. 

6295(o)(2)(B)(iii)) For each efficiency level it considered, DOE determined the value of the first 

year’s energy savings by calculating the quantity of those savings in accordance with DOE’s test 

procedure, and multiplying that amount by the average energy price forecast for the year in 

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which a new standard is expected to take effect. Section V.B.1.c of this notice and chapter 8 of 

the NOPR TSD present the rebuttable presumption PBP results. 

Earthjustice stated the DOE must justify any refusal to adopt standard levels at least as 

strong as those that satisfy the rebuttable presumption payback period. (Earthjustice, No. 47 at p. 

3) The LCC and PBP analyses generate values that calculate the payback period for consumers 

of potential energy conservation standards; these include, but are not limited to, the 3-year 

payback period contemplated under the rebuttable presumption test discussed above. However, 

DOE routinely conducts an economic analysis that considers the full range of impacts, including 

those to the consumer, manufacturer, Nation, and environment, as required under 42 U.S.C. 

6295(o)(2)(B)(i) and 42 U.S.C. 6316(e)(1)). The results of this analysis serve as the basis for 

DOE to definitively evaluate the economic justification for a potential standard level, thereby 

supporting or rebutting the results of any preliminary determination of economic justification. 

F. National Impact Analysis—National Energy Savings and Net Present Value Analysis 

The national impact analysis assesses the national energy savings and the net present 

national impact analysis assesses the national energy savings and the net present value of total 

product costs and savings expected to result from standards at specific efficiency levels. DOE 

used the NIA spreadsheet to calculate energy savings and NPV, using the annual energy 

consumption and total installed cost data from the LCC analysis. DOE forecasted the energy 

savings, energy cost savings, product costs, and NPV for each product class from 2013 (or 2015) 

through 2043 (or 2045). The forecasts provided annual and cumulative values for the above 

output parameters. In addition, DOE used its NIA spreadsheet to analyze scenarios that used 

inputs from the AEO2009 Low Economic Growth and High Economic Growth cases. These 

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cases have higher and lower energy price trends compared to the Reference case, as well as 

higher and lower housing starts, which result in higher and lower appliance shipments to new 

homes. 

Earthjustice stated that DOE needs to consider the impact of increased employment and 

reduced emissions in its national impact analysis. (Earthjustice, No. 47 at p. 1) NRDC stated that 

DOE failed to include the benefits of avoided carbon emissions in the NIA. (NRDC, No. 48 at p. 

5) In response, DOE accounts for the impacts on employment in the employment impact analysis 

(section IV.I), and it quantifies avoided carbon emissions in the environmental assessment 

(section IV.K).The NIA primarily considers the national energy savings and the NPV from a 

national perspective of total appliance consumer costs and savings expected to result from 

standards, and it also evaluates the benefits to the economy of reduced energy prices due to 

standards. Even though employment and reduced emissions are separately addressed outside the 

NIA, DOE thoroughly considers these issues when conducting its analyses in the context of 

standard setting. 

Table IV.29 summarizes the approach and data DOE used to derive the inputs to the NES 

and NPV analyses for the preliminary analysis and the changes to the analyses for the proposed 

rule. A discussion of these inputs and changes follows. See chapter 10 of the NOPR TSD for 

further details. 

Table IV.29 Approach and Data Used for National Energy Savings and Consumer Net 

Present Value Analyses 

Inputs Preliminary TSD Changes for the Proposed Rule 

Shipments Annual shipments from shipments 

model. 

See IV.F.1.a through IV.F.1.d. 

Compliance Date Water Heaters: 2015. No change. 

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of Standard DHE and Pool Heaters: 2013. 

Base-Case 

Forecasted 

Efficiencies 

Efficiency market shares estimated for 

compliance year. SWEF* remains 

constant except for gas and electric 

water heaters, for which SWEF 

increases slightly over forecast period. 

No change in approach; updated 

efficiency market shares 

estimated for compliance year. 

Standards-Case 

Forecasted 

Efficiencies 

 “Roll-up” scenario used for 

determining SWEF in 2013 (or 2015) 

for each standards case. SWEF 

remains constant except for gas and 

electric water heaters, for which SWEF 

increases slightly over forecast period. 

No change in approach; updated 

efficiency market shares 

estimated for compliance year. 

Annual Energy 

Consumption per 

Unit 

Annual weighted-average values as a 

function of SWEF. 

No change. 

Rebound Effect Water heaters: 10%. 

DHE: 15%. 

Pool Heaters: 10%. 

No change. 

Total Installed 

Cost per Unit 

Annual weighted-average values as a 

function of SWEF. 

No change. 

Energy Cost per 

Unit 

Annual weighted-average values a 

function of the annual energy 

consumption per unit and energy (and 

water) prices. 

No change. 

Repair Cost and 

Maintenance Cost 

per Unit 

Annual values are a function of 

efficiency level. 

No change. 

Escalation of 

Energy Prices 

AEO2008 forecasts (to 2030) and 

extrapolation to 2043 (and 2045). 

Updated using AEO2009 

forecasts. 

Energy Site-toSource Conversion 

Factor 

Varies yearly and is generated by 

DOE/EIA’s NEMS 

No change. 

Discount Rate Three and seven percent real. No change. 

Present Year Future expenses are discounted to 

2007. 

Future expenses are discounted to 

2010, when the final rule will be 

published. 

*Shipments-Weighted Energy Factor 

1. Shipments 

The shipments portion of the NIA spreadsheet is a model that uses historical data as a 

basis for projecting future shipments of the appliance products that are the subject of this 

rulemaking. In projecting shipments for water heaters and pool heaters, DOE accounted for two 

market segments: (1) new construction and (2) replacement of failed equipment. Data were 

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unavailable to develop separate forecasts of direct heating equipment shipments for replacement 

and new home installations, so the forecast was based on the time series of historical total 

shipments developed for each product class. 

Table IV.30 summarizes the approach and data DOE used to derive the inputs to the 

shipments analysis for the preliminary analysis, and the changes DOE made for today’s proposed 

rule. A discussion of these inputs and changes follows. For details on the shipments analysis, see 

chapter 9 of the NOPR TSD. 

Table IV.30 Approach and Data Used for the Shipments Analysis 

Inputs Preliminary Analysis Changes for the Proposed Rule 

Historical Shipments 

Water Heaters: Data provided by 

AHRI. 

DHE: Data provided by AHRI and 

DOE estimates. 

Pool Heaters: Data from 1993 TSD 

and DOE estimates. 

Water Heaters: Used updated 

data from AHRI. 

DHE: Used data from 

manufacturers and HPBA* for 

hearth products. 

Pool Heaters: Used inputs from 

manufacturers. 

New Construction 

Shipments 

For water heaters and pool heaters, 

determined by multiplying housing 

forecasts by forecasted saturation of 

products in new housing. 

Housing forecasts based on AEO2008 

projections. 

New housing product saturations 

based on AHS for water heaters, 

consultant data for pool heaters. 

No change in approach. New 

housing forecast updated with 

AEO2009 projections. 

Replacements 

For water heaters and pool heaters, 

determined by tracking total product 

stock by vintage and establishing the 

failure of the stock using retirement 

functions from the LCC and PBP 

analysis. 

No change for water heaters. 

For pool heaters, included 

estimated non-replacement of 

some pool heaters. 

First-Time Owners Included for pool heaters. No change. 

* Hearth, Patio & Barbecue Association 

To determine new construction shipments, DOE used forecasts of housing starts coupled 

with estimates of product market saturation in new housing. For the preliminary analysis, DOE 

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used actual data for 2007 for new housing completions and mobile home placements and adopted 

the projections from AEO2008 for 2008 to 2030. DOE updated its new housing projections for 

today’s proposed rule using AEO2009. DOE estimated replacements using historical shipments 

data and product retirement functions that it developed from product lifetimes. 

AHRI stated that shipments for all of the products dropped considerably in 2008, and this 

drop will change the forecast since today's new house installation is tomorrow's replacement 

installation. (AHRI, No. 33 at p. 2) In response, DOE’s NOPR analysis used actual shipments 

data for 2008, so any such changes are captured in DOE’s analysis. 

a. Water Heaters 

For the preliminary analysis, DOE used information on choice of water heater products in 

recently-built housing to estimate shipments to the new construction market. DOE assumed the 

market shares of water heaters using a particular fuel follow the average pattern in new homes 

for 2000 to 2006 throughout the forecast period. The shipments model assumes that when a unit 

using a particular fuel is retired, it generally is replaced with a unit that uses the same fuel. 

Section IV.F.1.d discusses the potential effects of energy conservation standards on choice of 

water heater product in the new construction and replacement markets. 

For its shipments forecast for gas-fired storage water heaters and electric storage water 

heaters, DOE assumed that the current market shares of small-volume and large-volume products 

would remain the same throughout the forecast period. 

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Within the category of gas-fired water heaters, DOE disaggregated the shares of gas 

storage water heaters and gas-fired instantaneous water heaters based on projections of total 

shipments of gas-fired instantaneous water heaters. Because there is much uncertainty about the 

future growth of gas-fired instantaneous water heaters, DOE modeled three scenarios for their 

market penetration. The scenarios are based on experience with gas-fired instantaneous water 

heaters in Australia, where the proportion of instantaneous water heaters in total gas-fired storage 

water heater shipments has grown considerably in the past decade. (See Syneca Consulting, 

Cost-Benefit Analysis: Proposal to Introduce a Minimum Energy Performance Standard for Gas 

Water Heaters, 2007, Australian Greenhouse Office: Equipment Energy Efficiency Gas 

Committee.) Residential water heating services and technology in Australia are roughly 

comparable to those in the United States. Storage water heaters have somewhat lower volume 

capacities in Australia, but end-use hot water demand also may be lower. Prices of gas-fired 

instantaneous water heaters in Australia are roughly comparable to prices of gas-fired storage 

water heaters (excluding installation costs). In the United States, gas-fired instantaneous water 

heaters currently cost about twice as much as typical 40-gallon gas storage water heaters. 

Although the price differential in the United States likely will decrease, the specifics of the 

United States market probably will not duplicate the market in Australia. Nonetheless, DOE 

believes that the market evolution in Australia provides the most similar model for scenarios for 

the United States. 

AHRI stated that the Australian water heater market has significant differences from the 

U.S. market because in Australia: (1) gas water heaters are not the prevalent residential option; 

(2) many gas water heaters are installed outside; and (3) prices of gas storage water heaters and 

gas-fired instantaneous water heaters are practically equal. (AHRI, No. 43 at p. 2) Rheem stated 

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that in Australia, most water heaters are installed outdoors, which makes a difference in terms of 

the venting and total installation cost. (Rheem, Public Meeting Transcript, No. 34.4 at p. 241) 

A.O. Smith commented that the scenario for low market penetration of gas-fired instantaneous 

water heaters may be reasonable, but the other two scenarios over-predict the market penetration. 

(A.O. Smith, No. 37 at p. 7) Noritz stated that Australia is the only market it has identified that 

could provide any insight into the adoption of gas-fired instantaneous water heaters in the United 

States. (Noritz, No. 36 at p. 3) 

In response, DOE acknowledges the uncertainty associated with basing forecasted market 

penetration of gas-fired instantaneous water heaters on the Australian experience, but it agrees 

with Noritz (the largest manufacturer of these products) that there is no other market that could 

provide a model for forecasting U.S. market penetration. In making use of the Australian 

experience, DOE took into account some of the differences between the two markets that would 

tend to cause shipments growth to be lower in the U.S. For further details on the shipments 

forecast for gas-fired instantaneous water heaters, see chapter 9 of the NOPR TSD. 

b. Direct Heating Equipment 

To estimate historical shipments of direct heating equipment for the preliminary analysis, 

DOE used two sets of data from AHRI and information from the 1993 TSD. Data were 

unavailable to develop separate forecasts of direct heating equipment shipments for replacement 

and new home installations, so DOE based the forecast on the time series of historical total 

shipments developed for each product class. To forecast shipments of gas room DHE, shipments 

of room heaters were held constant at the average level from 2002 to 2005, and gas fireplace 

shipments (referred to as hearth products DHE in this NOPR) assigned to gas room DHE were 

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EE-2006-STD-0129 COMMENT 56.1
held constant at the average from 2002 to 2004. Forecasted floor furnaces shipments follow the 

downward trend from 2000 to 2007. Total combined shipments of gas wall gravity and gas wall 

fan DHE were held constant at the average volume from 2002 to 2006. The upward trend seen 

from 2002 to 2006 was extrapolated into the future for gas wall fan DHE. DOE derived future 

shipments of gas wall gravity DHE based on the combined shipments of gas wall gravity and gas 

wall fan DHE and the forecast shipments for the latter. Shipments of gas fireplaces assigned to 

gas wall fan DHE were kept constant at the average from 2002 to 2004. 

Commenting on DOE's forecast, HPBA stated that gas fireplace shipments will likely 

decrease as opposed to staying level. (HPBA, Public Meeting Transcript, No. 34.4 at p. 258) 

Apart from a decrease due to the 2008-2009 economic recession, DOE is not aware of reasons 

why gas fireplace (hearth products) shipments would be expected to decrease, given that the 

number of U.S. households will continue to increase. However, based on its review of market 

information, DOE modified its forecast of gas hearth products shipments. The forecast used for 

the NOPR accounts for the sharp decline in shipments in 2007-2008, but assumes that shipments 

in the future will approximately follow the trend seen in 1998-2007. 

In addition, DOE modified its forecast of gas wall gravity and gas wall fan DHE to better 

reflect current information. Instead of having different trends for each of these product classes, as 

in the preliminary analysis, DOE assumed that shipments of each class would stay constant at the 

2008 level during the forecast period. 

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c. Pool Heaters 

To forecast pool heater shipments for new construction for the preliminary analysis, DOE 

multiplied the annual housing starts forecasted for single-family and multi-family housing by the 

estimated saturation of gas-fired pool heaters in recently built new housing. For replacement pool 

heaters, DOE used a survival function based on its distribution of product lifetimes to determine 

when a unit fails. DOE also introduced a market segment representing purchases by existing 

households that had not owned a pool heater. These first-time owners include existing 

households that have a pool and those that install one. 

In the preliminary analysis, DOE’s projected that pool heater shipments would grow 

significantly from 0.28 million in 2006 to over 0.7 million by 2040. Raypak stated that the slope 

of the shipments forecast for pool heaters should be consistent with the past 10 years of data, 

which show that the slope is either constant or decreasing due to economic reasons. It also stated 

that pool heater new construction shipments are declining because of lot size issues and other 

restrictions. (Raypak, No. 34.4 at p. 247) EEI stated that projected pool heater shipments are 

overstated and that DOE should obtain more recent numbers to develop more realistic 

projections for shipments. (EEI, No. 40 at pp. 5-6) In response, DOE revised the NOPR analysis 

to account for those households that are not likely to replace their pool heater when it fails due to 

cost. As a result, the shipments projection shows only modest growth over the analysis period. 

d. Impacts of Standards on Shipments 

In some of its energy conservation standard rulemakings, DOE has used elasticities to 

estimate the response of appliance demand (shipments) to changes in the installed cost and 

operating costs associated with more-efficient appliances. Typically, higher installed costs of 

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more-efficient appliances are projected to cause some consumers to forego purchase of a new 

product. 

In the case of water heaters, however, DOE believes that this approach would not be 

appropriate because the consumer (or home builder) decision is usually not whether to purchase 

the product or not, but rather what type of water heater to buy. A water heater is generally not a 

discretionary purchase. However, to the extent that energy conservation standards result in an 

increase in the price of a specific type of water heater compared to a competing product, some 

consumers (or home builders in the case of shipments for new construction) may purchase the 

competing product. The consumer or builder decision is not solely based on economic factors, as 

the availability of natural gas plays a key role. Evaluation of this decision requires an assessment 

of the specific factors that influence it in the context of the two main markets for water heaters, 

replacements and new homes. 

In the preliminary analysis, DOE determined that the greatest potential for product 

switching would exist in the case of a standard that effectively required an electric heat pump 

water heater. This type of product often has a substantially higher installed cost than a typical 

electric resistance storage water heater and is relatively new to consumers and builders. Because 

the product choice decision partially depends on the relative costs of competing products, DOE 

considered the following potential combinations of electric and gas-fired storage water heaters 

that could result from standards: (1) electric heat pump water heater and a gas-fired storage water 

heater using natural draft; (2) electric heat pump water heater and a gas-fired storage water 

heater using a power vent; and (3) electric heat pump water heater and a gas-fired storage water 

heater using condensing technology. DOE used data from the 2001 RECS to estimate the 

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percentage of households expected to purchase an electric water heater in the base case that 

could switch to a gas-fired water heater because they had the necessary infrastructure. To 

estimate how many households that could switch to gas-fired water heaters would do so, DOE 

considered the difference in installed cost between the gas-fired storage water heater and an 

electric heat pump water heater in each of the combinations listed above. 

DOE did not quantify the potential for switching to gas water heating in the case of a 

standard that requires 0.95 EF for electric water heaters, as the installed cost is only moderately 

higher than the baseline electric water heater (0.90 EF), and DOE judged that this would not be 

sufficient to prompt consumers to consider switching to gas water heating. 

ACEEE stated that because builders make the choices that lock in subsequent energy 

source decisions at the time of construction, converting to a different energy source for water 

heating is too costly. However, it added that a few consumers in existing houses would choose 

gas conversion over installing a heat pump water heater. (ACEEE, No. 35 at pp. 6-7) NEEA and 

NPCC commented that most water heater replacements are on an emergency basis and that there 

is no convincing argument to include fuel switching in the analysis. (NEEA and NPCC, No. 42 

at p. 9) 

DOE agrees with the comment from ACEEE but it also notes that not all water heater 

replacements are on an emergency basis. DOE believes that the cost differential estimated in its 

analysis suggests that a small fraction of consumers would be likely to switch. For the NOPR, 

DOE used a similar approach as for the preliminary analysis using data from the 2005 RECS. 

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Southern stated that many consumers would switch to a gas-fired storage water heater 

instead of installing a heat pump water heater even if the installed cost is more, especially if the 

heat pump water heater would need to be installed in an enclosed interior location. (Southern, 

No. 50 at p. 4) DOE’s approach took detailed account of those situations in which consumers 

with a failed electric storage water heater would find it less expensive to switch to a gas-fired 

storage water heater instead of installing a heat pump water heater. In determining which 

households would switch to a gas-fired storage water heater, the analysis considered the installed 

costs that consumers might incur if they replaced an electric storage water heater located indoors 

with a heat pump water heater. (Refer to the discussion of installation costs for heat pump water 

heaters in section IV.E.2.a.) Given that an interior location may not easily allow the venting 

required with installing a gas-fired storage water heater, DOE does not believe consumers would 

switch to a gas-fired storage water heater instead of installing a heat pump water heater if the 

installed cost of the gas-fired product is higher. 

In the NOPR analysis, the fraction of households using an electric storage water heater 

estimated to switch to a gas-fired storage water heater instead of installing a heat pump water 

heater ranges from zero with a standard level for gas-fired storage water heaters that requires 

condensing technology, to 9 percent with a standard level for gas-fired storage water heaters that 

requires power vent technology. 

In the preliminary analysis, DOE concluded that builders who planned to install an 

electric storage water heater would not switch to gas-fired storage water heaters in the event of a 

standard that effectively requires heat pump technology. A.O. Smith stated that builders would 

be unlikely to switch from a heat pump water heater to a gas-fired storage water heater due to the 

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cost of adding gas to the house, and if gas were already supplied to the house, a heat pump water 

heater would not have been installed. (A.O. Smith, No. 37 at p. 8) DOE agrees that availability 

of natural gas is the key determining factor for builders. Accordingly, DOE’s analysis for the 

NOPR shows negligible switching in new homes. 

EEI stated that there may be a switch from electric storage to electric instantaneous water 

heaters if DOE adopts a standard level that would require use of heat pump technology for 

electric storage water heaters. (EEI, No. 40 at p. 5) DOE acknowledges that some households 

facing extreme structural modifications to accommodate a heat pump water heater may purchase 

an electric instantaneous water heater instead. However, because such switching requires 

expensive electrical modification to the home’s electrical circuits to accommodate the higher 

electrical demand of instantaneous water heaters, DOE believes it is an unlikely choice for most 

households with electric water heating. 

With respect to the new construction market, in the preliminary analysis, DOE concluded 

that builders who planned to install an electric storage water heater would not switch to gas-fired 

storage water heaters in the event of a standard that effectively requires heat pump technology. 

A.O. Smith commented that builders would be unlikely to switch from a heat pump water heater 

to a gas-fired storage water heater due to the cost of adding gas to the house, and if gas had been 

already supplied to the house, a heat pump water heater would not have been installed. (A.O. 

Smith, No. 37 at p. 8) DOE agrees that availability of natural gas is the key factor determining 

water heater choice for home builders. Accordingly, DOE’s analysis for the NOPR shows 

negligible switching in new homes. 

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Regarding potential switching from gas-fired water heaters to electric water heaters, DOE 

determined that the cost of replacing an existing gas-fired storage water heater with an electric 

one is substantial due to the complexity of the installation. Because it takes longer for an electric 

storage water heater to recover heated capacity, a larger electric tank may be necessary to replace 

a gas unit. In new construction, if natural gas is available, builders generally will install a gasfired water heater. Given the above considerations, in both new construction and the replacement 

market, a large increase in the price of a gas storage water heater compared to an electric storage 

water heater likely would be necessary to motivate consumers to replace a gas water heater with 

an electric unit, or to motivate builders to install an electric water heater instead of a gas unit. 

Because DOE does not envision such a price differential resulting from this rulemaking, it 

concluded that amended standards would not induce switching from a gas storage water heater to 

an electric storage water heater. 

In its preliminary analysis, DOE did not quantify the potential for switching away from 

oil-fired water heaters. Bock and EEI stated that DOE should consider fuel and equipment 

switching impacts of standards on oil-fired equipment. (Bock, No. 53 at p. 1; EEI, No. 40 at pp. 

4-5) In response, DOE believes that that the price of the oil-fired storage water heater is a minor 

factor in the fuel choice decision for households with such a water heater. In most cases, a 

household with an oil-fired storage water heater needing replacement would switch to a gas-fired 

water heater if gas is available because of the greater convenience and lower cost of gas water 

heating. Therefore, DOE believes that the moderately higher equipment price that might result 

from the proposed standard level (5 percent) would have a negligible impact on fuel switching 

for oil-fired storage water heaters, and DOE did not include such switching in its NOPR analysis 

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In its preliminary analysis, DOE did not quantify the potential for switching away from 

gas-fired instantaneous water heaters due to lack of quantitative information about the factors 

that shape the purchase decision for this product. However, given that the vast majority of the 

market (85 percent) is already at the proposed standard level (0.82 EF), there is little reason to 

expect any switching to storage water heaters as a result of the proposed standard. 

For DHE and pool heaters, DOE did not find any data it could use to estimate the extent 

of switching away from the gas-fired products subject to this rulemaking if energy conservation 

standards were to result in a significant increase in installed costs. DOE did not receive any 

comments on its approach for these products, and it maintained the same approach for the NOPR 

analysis. 

In summary, DOE projects that no fuel switching would occur for gas-fired storage, oilfired storage, and gas-fired instantaneous water heaters. For electric storage water heaters, DOE 

estimated that a standard that effectively requires heat pump water heaters would result in a 

decline in shipments ranging from zero to 9 percent, depending on the standard level for gasfired storage water heaters. 

DOE requests comments on its analysis of fuel switching that may result from the 

proposed standards on water heaters and the other heating products. In particular, DOE requests 

comments on (1) its general approach, which does not involve price elasticities; (2) its analysis 

of switching to gas-fired storage water heaters in the case of a standard that effectively requires 

an electric heat pump water heater; (3) its conclusion that the proposed standards would not 

induce switching from a gas storage water heater to an electric storage water heater; and (4) its 

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conclusion that the proposed standards would not induce switching for gas-fired instantaneous 

water heaters, DHE, and pool heaters. This is identified as issue 15 under “Issues on Which DOE 

Seeks Comment” in section VII.E of this NOPR. 

2. Other Inputs 

The following is a discussion of the other inputs to the NIA and any revisions DOE made 

to those inputs for today’s proposed rule. 

a. Base-Case Forecasted Efficiencies 

A key input to DOE’s estimates of NES and NPV is the energy efficiencies that DOE 

forecasts over time for the base case (without new standards) and each of the standards cases. 

The forecasted efficiencies represent the annual shipment-weighted energy efficiency of the 

products under consideration over the forecast period. 

For the preliminary analysis, DOE used the SWEFs for 2013 or 2015 as a starting point 

to forecast the base-case energy efficiency distribution for each product class. To represent the 

distribution of product energy efficiencies in those years, DOE used the same market shares as in 

the base case for the LCC analysis. For gas storage water heaters and electric storage water 

heaters, DOE estimated the distribution of product energy efficiencies in 2015 by accounting for 

the estimated market impact of the newly established ENERGY STAR efficiency levels for 

water heaters (see section IV.9.a). The projected trend to 2015 represents an average annual 

increase in energy efficiency of 0.27 percent for gas-fired storage water heaters and 0.55 percent 

for electric storage water heaters. DOE applied the above values to estimate the increase in 

average energy efficiency until the end of the forecast period. 

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DOE found no quantifiable indications of change in energy efficiencies over time for oilfired and gas-fired instantaneous water heaters, direct heating equipment, or pool heaters, and it 

did not receive any comments on this topic. Therefore, for these products, DOE estimated that 

energy efficiencies remain constant at the 2015 or 2013 level until the end of the forecast period. 

For today’s proposed rule, DOE maintained the approach described above. 

b. Standards-Case Forecasted Efficiencies 

For its determination of standards-case forecasted efficiencies, DOE used a “roll-up” 

scenario in the preliminary analysis and the NOPR to establish the SWEF for the year that 

standards would become effective and subsequent years. In this approach, product energy 

efficiencies in the base case that do not meet the standards level under consideration would roll 

up to meet the new standard level. The market share of energy efficiencies that exceed the 

standard level under consideration would be the same in the standards case as in the base case. 

Changes over the forecast period match those in the base case. For today’s proposed rule, DOE 

maintained this approach. 

c. Annual Energy Consumption 

The inputs for determining NES are annual energy consumption per unit, shipments, 

equipment stock, national annual energy consumption, and site-to-source conversion factors. 

Because the annual energy consumption per unit depends directly on efficiency, DOE used the 

SWEFs associated with the base case and each standards case, in combination with the annual 

energy use data, to estimate the shipment-weighted average annual per-unit energy consumption 

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under the base case and standards cases. The national energy consumption is the product of the 

annual energy consumption per unit and the number of units of each vintage. This calculation 

accounts for differences in unit energy consumption from year to year. For today’s proposed 

rule, DOE maintained this approach. 

d. Site-to-Source Energy Conversion 

To estimate the national energy savings expected from appliance standards, DOE uses a 

multiplicative factor to convert site energy consumption (at the home or commercial building) 

into primary or source energy consumption (the energy required to deliver the site energy). 

These conversion factors account for the energy used at power plants to generate electricity and 

losses in transmission and distribution, as well as for natural gas losses from pipeline leakage and 

energy used for pumping. For electricity, the conversion factors vary over time due to projected 

changes in generation sources (i.e., the power plant types projected to provide electricity to the 

country). The factors that DOE developed are marginal values, which represent the response of 

the system to an incremental decrease in consumption associated with appliance standards. 

In the preliminary analysis, DOE used annual site-to-source conversion factors based on 

the version of NEMS that corresponds to AEO2008. For today’s NOPR, DOE updated its 

conversion factors based on AEO2009. The AEO does not provide energy forecasts beyond 

2030; DOE used conversion factors that remain constant at the 2030 values throughout the 

remainder of the forecast period. 

In response to a request from the DOE’s Office of Energy Efficiency and Renewable 

Energy (EERE), the National Research Council (NRC) appointed a committee on “Point-of-Use 

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and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards” to conduct a 

study called for in section 1802 of EPACT 2005. The fundamental task before the committee 

was to evaluate the methodology used for setting energy efficiency standards and to comment on 

whether site (point-of-use) or source (full-fuel-cycle) measures of energy efficiency better 

support rulemaking to achieve energy conservation goals. The NRC committee defined site 

(point-of-use) energy consumption as reflecting the use of electricity, natural gas, propane, 

and/or fuel oil by an appliance at the site where the appliance is operated. Full-fuel-cycle energy 

consumption was defined as including, in addition to site energy use, the following: energy 

consumed in the extraction, processing, and transport of primary fuels such as coal, oil, and 

natural gas; energy losses in thermal combustion in power generation plants; and energy losses in 

transmission and distribution to homes and commercial buildings. (See The National Academies, 

Board on Energy and Environmental Systems, Letter to Dr. John Mizroch, Acting Assistant 

Secretary, U.S. DOE, Office of EERE from James W. Dally, Chair, Committee on Point-of-Use 

and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards, May 15, 2009.) 

In evaluating the merits of using point-of-use and full-fuel-cycle measures, the NRC 

committee noted that DOE uses what the committee referred to as “extended site” energy 

consumption to assess the impact of energy use on the economy, energy security, and 

environmental quality. The extended site measure of energy consumption includes the 

generation, transmission, and distribution but, unlike the full-fuel-cycle measure, does not 

include the energy consumed in extracting, processing, and transporting primary fuels. A 

majority of members on the NRC committee concluded that extended site energy consumption 

understates the total energy consumed to make an appliance operational at the site. As a result, 

the NRC committee’s primary general recommendation is for DOE to consider moving over time 

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to use of a full-fuel-cycle measure of energy consumption for assessment of national and 

environmental impacts, especially levels of greenhouse gas emissions, and to providing more 

comprehensive information to the public through labels and other means, such as an enhanced 

website. For those appliances that use multiple fuels (e.g., water heaters), the NRC committee 

believes that measuring full-fuel-cycle energy consumption would provide a more complete 

picture of energy used, thereby allowing comparison across many different appliances as well as 

an improved assessment of impacts. The NRC committee also acknowledged the complexities 

inherent in developing a full-fuel-cycle measure of energy use and stated that a majority of the 

committee recommended a gradual transition to that expanded measure and eventual 

replacement of the currently used extended site measure. 

DOE acknowledges that its site-to-source conversion factors do not capture all of the 

energy consumed in extracting, processing, and transporting primary fuels. DOE also agrees with 

the NRC committee’s conclusion that developing site-to-source conversion factors that capture 

the energy associated with the extraction, processing, and transportation of primary fuels is 

inherently complex and difficult. However, DOE has performed some preliminary evaluation of 

a full-fuel-cycle measure of energy use. 

Based on two studies completed by the National Renewable Energy Laboratory (NREL) 

in 1999 and 2000, DOE estimated the ratio of the energy used upstream to the energy content of 

the coal or natural gas delivered to power plants. For coal, the NREL analysis considered typical 

mining practices and mine-to-plant transportation distances, and used data for the State of 

Illinois. Based on data in this report, the estimated multiplicative factor for coal is 1.08 (i.e., it 

takes approximately 1.08 units of coal energy equivalent to provide 1 unit of coal to a power 

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plant). A similar analysis of the energy consumed in upstream processes needed to produce and 

deliver natural gas to a power plant yielded a multiplicative factor of 1.19. (For further 

information on the NREL studies, please see: Spath, Pamela L., Margaret K. Mann, and Dawn 

Kerr, Life Cycle Assessment of Coal-fired Power Production, NREL/TP-570-25119, June 1999; 

and Spath, Pamela L. and Margaret K. Mann, Life Cycle Assessment of a Natural Gas 

Combined-Cycle Power Generation System, NREL/TP-570-27715, September 2000.) 

While the above factors are indicative of the magnitude of the impacts of using full-fuelcycle measures of energy use, there are two aspects of the problem that warrant further study. 

The first is the refinement of the estimates of the multiplicative factors, particularly to 

incorporate regional variation. The second is development of forecasts of the multiplicative 

factors over the time frames used in the rulemaking analyses, typically ten to fifty years. The 

second issue, of forecasting how the efficiency factors for various fuels may change over time, 

has the potential to be quite significant. The existing NEMS forecast of power plant electricity 

generation by fuel type can be used to estimate the impact of a changing mix of fuels. However, 

currently NEMS provides no information on potential changes to the relative ease with which the 

different fuels can be extracted and processed. DOE intends to further evaluate the viability of 

using full-fuel-cycle measures of energy consumption for assessment of national and 

environmental impacts of appliance standards. 

e. Total Installed Costs and Operating Costs 

The total annual installed cost increase is equal to the annual difference in the per-unit 

total installed cost between the base case and standards cases multiplied by the shipments 

forecasted in the standards case. 

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The annual operating cost savings per unit reflect differences in energy, repair, and 

maintenance costs between the base case and the various standard levels DOE considered. DOE 

forecasted energy prices for the preliminary analysis are based on AEO2008. DOE updated the 

energy prices for today’s proposed rule using forecasts from AEO2009. 

f. Discount Rates 

DOE multiplies monetary values in future years by the discount factor to determine the 

present value. For the preliminary analysis and today’s NOPR, DOE estimated the NPV of 

appliance consumer benefits using both a 3-percent and a 7-percent real discount rate. DOE uses 

these discount rates in accordance with guidance provided by the Office of Management and 

Budget (OMB) to Federal agencies on the development of regulatory analysis (OMB Circular A4 (Sept. 17, 2003), section E, “Identifying and Measuring Benefits and Costs”). NRDC stated 

that a discount rate below 3 percent is warranted for societal benefits. (NRDC, No. 48 at p. 5) 

OMB Circular A-4 states that when regulation primarily and directly affects private 

consumption, a lower discount rate is appropriate. “The alternative most often used is sometimes 

called the social rate of time preference...the rate at which ‘society’ discounts future 

consumption flows to their present value.” (p. 33) It suggests that the real rate of return on longterm government debt may provide a fair approximation of the social rate of time preference, and 

states that over the last 30 years, this rate has averaged around 3 percent in real terms on a pretax basis. It concludes that “for regulatory analysis, [agencies] should provide estimates of net 

benefits using both 3 percent and 7 percent.” (p. 34) DOE finds that the guidance from OMB is 

reasonable, so it is continuing to use a 3-percent and a 7-percent discount rate for estimating net 

benefits. 

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3. Other Inputs 

a. Effects of Standards on Energy Prices 

In the preliminary analysis, DOE analyzed the potential impact on natural gas prices 

resulting from amended standards on water heaters and the associated benefits for all natural gas 

consumers in all sectors of the economy. (DOE did not include natural gas savings from 

amended standards on DHE and pool heaters in this analysis because they are not large enough 

to have a noticeable impact.) DOE used NEMS-BT to account for the natural gas savings 

associated with two scenarios of possible standards, including max-tech efficiency levels. Like 

other widely used energy-economic models, NEMS incorporates parameters to estimate the 

changes in energy prices that would result from an increase or decrease in energy demand. The 

response of price to a decrease in demand is termed the “inverse price elasticity.” The overall 

inverse price elasticity observed in NEMS changes over the forecast period based on the model’s 

dynamics of natural gas supply and demand. DOE calculated the nominal savings in total natural 

gas expenditures in each year by multiplying the estimated annual change in the average enduser natural gas price by the annual total U.S. natural gas consumption associated with each 

scenario. DOE then calculated the NPV of the savings in natural gas expenditures for 2015 to 

2045 using 3- and 7-percent discount rates for each scenario. 

For the NOPR, DOE used the same approach to estimate the benefits of reduced natural 

gas prices as in the preliminary TSD. However, it analyzed the potential impact on natural gas 

prices, and the associated benefits for natural gas consumers, resulting from the proposed water 

heater standards (TSL 4), as well as the other TSLs considered. 

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NRDC stated that DOE must consider the benefit of reduced natural gas and electricity 

prices and include it in the NIA. (NRDC, No. 48 at p. 5) ACEEE stated that DOE must 

incorporate the impacts of gas and electricity consumption reductions resulting from the 

standards on energy prices in the primary economic analysis, rather than simply note side studies 

that DOE did not incorporate into the decision-making process. (ACEEE, No. 35 at p. 8) 

DOE reports the results of its analysis of the benefits of reduced natural gas prices 

associated with standards in chapter 10 of the NOPR TSD, National Impacts Analysis. As 

discussed therein, when gas prices drop in response to a lower output of existing natural gas 

production capacity, consumers benefit but producers suffer. In economic terms, the situation 

represents a benefits transfer to consumers (whose expenditures fall) from producers (whose 

revenue falls equally). When prices decrease because extraction costs decline, however, 

consumers and producers both benefit, and the change in natural gas prices represents a net gain 

to society. Consumers benefit from the lower prices, and producers, whose revenues and costs 

both fall, are no worse off. Because there is uncertainty about the extent to which the calculated 

impacts from reduced natural gas prices are a benefits transfer, DOE tentatively concluded that it 

should not give a heavy weight to this factor in its consideration of the economic justification of 

standards on heating products. 

DOE investigated the possibility of estimating the impact of specific standard levels on 

electricity prices in its rulemaking for general service fluorescent lamps and incandescent 

reflector lamps. (See U.S. Department of Energy-Office of Energy Efficiency and Renewable 

Energy: Energy Conservation Standards for General Service Fluorescent Lamps and 

Incandescent Reflector Lamps; Proposed Rule, 74 FR 16920, 16978-979 (April 13, 2009).) It 

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found that whereas natural gas markets exhibit a fairly simple chain of agents from producers to 

consumers, the electric power industry is a complex mix of fuel suppliers, producers, and 

distributors. While the distribution of electricity is regulated everywhere, its institutional 

structure varies, and upstream components are more complicated, because the cost of generation 

differs across the country. For these and other reasons, accurate modeling of the response of 

electricity prices to a decrease in residential-sector demand due to standards is problematic. 

Thus, DOE does not plan to estimate the value of potentially reduced electricity costs for all 

consumers associated with revised standards for heating products. 

G. Consumer Subgroup Analysis 

In analyzing the potential impact of new or amended standards on individual and 

commercial consumers, DOE evaluates the impact on identifiable subgroups of consumers that 

may be disproportionately affected by a national standard level. DOE used RECS data to analyze 

the potential effect of energy conservation standards on the considered consumer subgroups for 

selected heating products, as explained below. For gas-fired and electric storage water heaters, and 

gas wall fan and gas wall gravity DHE, DOE estimated consumer subgroup impacts for lowincome households and senior-only households. In addition, for gas-fired and electric storage 

water heaters, DOE estimated consumer subgroup impacts for households in multi-family 

housing and households in manufactured homes as well. 

DOE did not evaluate consumer subgroup impacts for gas-fired instantaneous water 

heaters and oil-fired storage water heaters. Gas-fired instantaneous water heaters were excluded 

from the consumer subgroup analysis due to insufficient data, and oil-fired storage water heaters 

were excluded due to low product shipments. For direct heating equipment, gas floor DHE and gas 

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room DHE were excluded due to the low and decreasing levels of product shipments. For gas hearth 

DHE, DOE examined the senior-only subgroup, but did not evaluate the low-income subgroup 

because the saturation of this product is very small among low-income households due to the high 

product cost. DOE did not evaluate consumer subgroup impacts for pool heaters because the 

sample size of the subgroups is too small for meaningful analysis. More details on the consumer 

subgroup analysis and results can be found in chapter 11 of the NOPR TSD. 

H. Manufacturer Impact Analysis 

1. Overview 

In determining whether an amended energy conservation standard for the three types of 

heating products subject to this rulemaking is economically justified, the Secretary is required to 

consider “the economic impact of the standard on the manufacturers and on the consumers of the 

products subject to such standard.” (42 U.S.C. 6295(o)(2)(B)(i)(I)) The statute also calls for an 

assessment of the impact of any lessening of competition as determined by the Attorney General 

that is likely to result from the adoption of a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) DOE 

conducted the MIA to estimate the financial impact of amended energy conservation standards 

on manufacturers of residential water heaters, DHE, and pool heaters, and to assess the impacts 

of such standards on employment and manufacturing capacity. 

The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA 

relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow model 

customized for the three heating products covered in this rulemaking. The GRIM inputs 

characterize each industry’s cost structure, shipments, and revenues. This includes information 

from many of the analyses described above, such as MPCs and MSPs from the engineering 

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analysis and shipment forecasts from the NIA. The key GRIM output is the Industry Net Present 

Value (INPV), which estimates the value of each industry on the basis of cash flows, 

expenditures, and investment requirements as a function of TSLs. Different sets of assumptions 

(scenarios) will produce different results. The qualitative part of the MIA addresses factors such 

as product characteristics, characteristics of particular firms, and market trends. The qualitative 

discussion also includes an assessment of the impacts of standards on manufacturer subgroups. 

The complete MIA is discussed in chapter 12 of the NOPR TSD. 

DOE conducted the MIA for the three types of heating products in three phases. Phase 1 

(Industry Profile) characterized each industry using data on market shares, sales volumes and 

trends, pricing, employment, and financial structure. Phase 2 (Industry Cash Flow) focused on 

each industry as a whole. In this phase, DOE used each GRIM to prepare an industry cash-flow 

analysis. Using publicly-available information developed in Phase 1, DOE adapted each GRIM's 

generic structure to perform an analysis of the impacts on residential water heater, directing 

heating equipment, and pool heater manufacturers due to amended energy conservation 

standards. In Phase 3 (Subgroup Impact Analysis), DOE conducted interviews with a 

representative cross-section of manufacturers that produce the majority of residential water 

heater, DHE, and pool heater sales. During these interviews, DOE discussed engineering, 

manufacturing, procurement, and financial topics specific to each company, and obtained each 

manufacturer’s view of the industry as a whole. The interviews also provided valuable 

information that DOE used to evaluate the impacts of amended energy conservation standard on 

manufacturer cash flows, manufacturing capacity, and employment levels. Each of these phases 

is discussed in further detail below. 

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a. Phase 1: Industry Profile 

In Phase 1 of the MIA, DOE prepared a profile of each of the three heating product 

industries based on the market and technology assessment prepared for this rulemaking. Before 

initiating the detailed impact studies, DOE collected information on the present and past 

structure and market characteristics of each industry. This information included market share 

data, product shipments, manufacturer markups, and the cost structure for various manufacturers. 

The industry profile includes: (1) further detail on the overall market and product characteristics; 

(2) estimated manufacturer market shares; (3) financial parameters such as net plant, property, 

and equipment, SG&A expenses, cost of goods sold, etc.; and (4) trends in the number of firms, 

market, and product characteristics for the three heating product industries. 

The industry profile included a top-down cost analysis of residential water heater, DHE, 

and pool heater manufacturers that DOE used to derive preliminary financial inputs for the 

GRIMs (e.g., revenues, depreciation, SG&A, and research and development (R&D) expenses). 

DOE also used public sources of information to further calibrate its initial characterization of 

each industry, including Security and Exchange Commission 10–K filings (available at 

www.sec.gov), Standard & Poor’s stock reports (available at www2.standardandpoors.com), and 

corporate annual reports. DOE supplemented this public information with data released by 

privately held companies. 

b. Phase 2: Industry Cash-Flow Analysis 

Phase 2 focused on the financial impacts of potential amended energy conservation 

standards on industries as a whole. More-stringent energy conservation standards can affect 

manufacturer cash flow in three distinct ways: (1) create a need for increased investment, (2) 

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raise production costs per unit, and (3) alter revenue due to higher per-unit prices and possible 

changes in sales volumes. To quantify these impacts in Phase 2 of the MIA, DOE used the 

GRIMs to perform three cash-flow analyses: one for the residential water heater industry 

(separated into the impacts on gas-fired and electric storage, oil-fired storage, and gas-fired 

instantaneous water heaters), one for DHE (separated into the impacts on traditional DHE and 

gas hearth DHE), and one for gas-fired pool heaters. In performing these analyses, DOE used the 

financial values derived during Phase 1 and the shipment scenarios used in the NIA. 

c. Phase 3, Subgroup Impact Analysis 

Using average cost assumptions to develop an industry-cash-flow estimate does not 

adequately assess differential impacts of amended energy conservation standards among 

manufacturer subgroups. For example, small manufacturers, niche players, or manufacturers 

exhibiting a cost structure that largely differs from the industry average could be more negatively 

affected. DOE used the results of the industry characterization analysis in Phase 1 to group 

manufacturers that exhibit similar characteristics. The interviews provided valuable information 

on manufacturer subgroups. During the manufacturer interviews, DOE discussed financial topics 

specific to each manufacturer and obtained each manufacturer’s view of the industry as a whole. 

As stated above, DOE reports the MIA impacts by grouping the impacts of certain 

product classes together. DOE presents the industry impacts by the major product types (gasfired and electric storage water heaters, oil-fired storage water heaters, gas-fired instantaneous 

water heaters, traditional DHE, gas hearth DHE, and gas-fired pool heaters). These product 

groupings represent separate markets that are served by the same manufacturers and are typically 

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produced in the same factories. Once segmented into major product types by industry, DOE was 

only able to identify one subgroup -- small manufacturers. 

For its small business manufacturer subgroup analysis, DOE uses the small business size 

standards published by the Small Business Administration (SBA) to determine whether a 

company is a “small business.” 65 FR 30836, 30848 (May 15, 2000), as amended at 65 FR 

53533, 53544 (Sept. 5, 2000) and codified at 13 CFR Part 121). To be categorized as a “small 

business,” a residential water heater, DHE, or pool heater manufacturer and its affiliates may 

employ a maximum of 500 employees. The 500-employee threshold includes all employees in a 

business’s parent company and any other subsidiaries. Based upon this classification, DOE 

identified five residential water heater manufacturers, 12 DHE manufacturers, and one small gasfired pool heater manufacturer that qualify as small businesses per the applicable SBA definition. 

The small business subgroup is discussed in chapter 12 of the TSD and in section VI.B of 

today’s notice. 

2. GRIM Analysis 

DOE uses the GRIM to quantify the changes in cash flow that result in a higher or lower 

industry value. The GRIM analysis uses a standard, annual-cash-flow analysis that incorporates 

MPCs, MSPs, shipments, and industry financial information as inputs, and models changes in 

costs, distribution of shipments, product and capital conversion costs, and manufacturer markups 

that would result from amended energy conservation standards. The GRIM spreadsheet uses the 

inputs to arrive at a series of annual cash flows, beginning with the base year of the analysis, 

2010, and continuing over the analysis period. DOE used the same base year (2010) as the NIA, 

which is the same year as the announcement of the final rule. DOE used the same analysis period 

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in the MIA as in the NIA. For all rulemakings, DOE considers a 30-year analysis period after the 

anticipated compliance date of the final rule, which under EPCA means the date after which 

regulated parties must comply with the requirements of the amended standard. The compliance 

date of the rulemaking is estimated to be March of 2013 for DHE and pool heaters and March of 

2015 for residential water heaters. The analysis period runs from the beginning of 2013 to 2043 

for DHE and pool heaters and from the beginning of 2015 to 2045 for residential water heaters. 

DOE uses the GRIM to calculate cash flows using standard accounting principles and to 

compare changes in INPV between the base case and various TSLs (the standards cases). The 

difference in INPV between the base case and the standards case represents the financial impact 

of the potential amended energy conservation standard on manufacturers. DOE collected this 

information from a number of sources, including publicly-available data and manufacturer 

interviews. 

DOE created a separate GRIM for each of the three types of heating products. For today’s 

notice, DOE is structuring separate TSLs for the three heating products. DOE also treats certain 

product classes within the three heating products separately. For example, DOE created 

specialized interview guides for different groups of product classes. These interview guides 

included one for storage water heaters (gas-fired storage, electric storage, and oil-fired storage 

water heaters), one for gas-fired instantaneous water heaters, one for traditional DHE (gas wall 

fan, gas wall gravity, gas floor, and gas room DHE), one for gas hearth DHE, and one for gasfired pool heaters. DOE grouped product classes made by the same manufacturers and in the 

same production facilities together. This allowed DOE to better understand the impacts on 

manufacturers of these product classes. 

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For example, the TSLs DOE considered for residential water heater packages selected 

efficiency levels of gas-fired storage, electric storage, oil-fired storage, and gas-fired 

instantaneous water heaters. The TSLs DOE considered for DHE packages selected efficiency 

levels for gas wall fan, gas wall gravity, gas floor, gas room, and gas hearth units. Each of the 

TSLs DOE considered for pool heaters consist of a single efficiency level for gas-fired pool 

heaters. DOE describes the TSLs in section V.A of today’s notice. Because the combinations of 

TSLs can make it more difficult to discuss the required efficiencies for each product class, DOE 

presents the MIA results in section V.B.2 of today’s notice and chapter 12 of the NOPR TSD by 

groups of manufacturers that make the covered products. DOE presents the MIA results for gasfired storage and electric storage water heaters together because manufacturers typically produce 

both types of water heaters in the same facilities. The MIA results for oil-fired storage and gasfired instantaneous water heaters are presented separately. The MIA results for DHE are 

separated into traditional DHE (gas wall fan, gas wall gravity, gas floor, and gas room DHE) and 

gas hearth DHE. The MIA results for gas-fired pool heaters are also presented separately. 

a. GRIM Key Inputs 

i. Manufacturer Product Costs 

In the MIA, DOE used the MPCs for the three types of heating products at each 

efficiency level calculated in the engineering analysis, as described in section IV.C and further 

detailed in chapter 5 of the NOPR TSD. Changes in MPCs can affect revenues and gross 

margins. For instance, manufacturing a higher-efficiency product is typically more expensive 

due to the use of more complex components and higher-cost raw materials. For gas-fired storage 

water heaters, DOE used a weighted average MPC using both standard burner and ultra-low238
 

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NOX burner cost-efficiency curves from the engineering analysis to account for shipments of 

ultra-low-NOX water heaters. 

ii. Base-Case Shipments Forecast 

The GRIM estimates manufacturer revenues based on total unit shipment forecasts and 

the distribution of these values by efficiency level. Changes in the efficiency mix at each 

standard level affect manufacturer finances. For this analysis, the GRIM uses the NIA shipments 

forecasts from 2008 and continuing until the end of the analysis period for each heating product 

(2045 for residential water heaters and 2043 for DHE and pool heaters). In the shipments 

analysis, DOE also estimated the distribution of efficiencies in the base case for all product 

classes. See section IV.F.1 for additional details. 

iii. Product and Capital Conversion Costs 

Amended energy conservation standards will cause manufacturers to incur one- time 

conversion costs to bring their production facilities and product designs into compliance. For the 

MIA, DOE classified these one-time conversion costs into two major groups: (1) product 

conversion costs and (2) capital conversion costs. Product conversion costs are one-time 

investments in research, development, testing, marketing, and other costs focused on making 

product designs comply with the amended energy conservation standard. Capital conversion 

costs are one-time investments in property, plant, and equipment to adapt or change existing 

production facilities so that new product designs can be fabricated and assembled. 

DOE assessed the product conversion costs manufacturers would be required to make at 

each TSL. For residential gas-fired storage water heaters, electric storage water heaters, and gas239
 

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fired pool heaters, DOE based most of its estimates of the product conversion costs on 

information obtained from manufacturer interviews. DOE estimated average industry product 

conversion costs by weighting the estimates from manufacturers by market share, then 

extrapolating the interviewed manufacturers’ product conversion costs for each product class to 

account for the market share of companies that were not interviewed. DOE verified the accuracy 

of these product conversion costs by comparing them to its own estimate of the product 

development, testing, certification, and retraining effort required by each manufacturer at each 

TSL. DOE also compared the product conversion costs to the total cost of other recent product 

development efforts manufacturers have incurred (such as the cost to redesign burners to comply 

with ultra-low-NOX requirements). For gas-fired and electric storage water heaters at TSL 5, 

DOE used the industry-wide product conversion costs for the standard-size volumes at TSL 4. 

DOE assumed the additional product conversion costs for the large gallon sizes at TSL 5 scaled 

with the total industry-wide product conversion costs. At TSL 5 for gas-fired and electric storage 

water heaters, DOE multiplied its estimate for the entire industry to exclusively offer heat pump 

products at TSL 6 and condensing products at TSL 7 by the percentage of total electric storage 

and gas-fired storage water heater models that exceed a 55 gallon rated volume (27 percent and 

11 percent, respectively). 

For oil-fired storage water heaters, gas-fired instantaneous water heaters, and all DHE 

product classes, DOE did not receive sufficient manufacturer data to serve as the basis for its 

industry-wide product conversion estimates. For these products, DOE calculated its estimates by 

reviewing product literature and publically-available information about the efficiency of the 

existing product lines. DOE used this information to estimate the number of product lines that 

manufacturers would need to modify or develop at each TSL. DOE also estimated a per-product240
 

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line development cost at each efficiency level and assumed these costs represented the product 

conversion costs for a manufacturer that has to upgrade product lines to meet that TSL. DOE 

also assumed that that the product development costs increase as the design changes become 

more complex and if manufacturers do not currently offer products that meet or exceed the 

required efficiency. DOE calculated the product conversion costs by multiplying its per-line 

product conversion cost estimate by the number of product lines that manufacturers would need 

to modify or develop at each TSL. For traditional DHE and gas-fired water heaters, DOE 

assumed that manufacturers would convert all existing product lines that did not meet the 

efficiencies required at that TSL. However, for gas hearth DHE DOE assumed that 

manufacturers would only convert up to 50-percent of their existing product lines that did not 

meet the required efficiencies. DOE’s estimates of the product conversion costs for all of the 

heating products addressed in this rulemaking can be found in section V.B.2 of today’s notice 

and in chapter 12 of the NOPR TSD. 

DOE also evaluated the level of capital conversion costs manufacturers would incur to 

comply with potential amended energy conservation standards. During interviews, DOE asked 

manufacturers to estimate the required capital conversion costs to expand the production of 

higher-efficiency products or quantify the required tooling and plant changes if product lines 

meeting the required efficiency level do not exist. For residential gas-fired storage water heaters, 

electric storage water heaters, and gas-fired pool heaters, DOE based its capital conversion costs 

for most TSLs on these interviews. DOE verified the accuracy of these capital conversion costs 

by comparing them to a separate bottoms-up estimate of the number of sub-assembly and 

assembly lines for each manufacturer and the required tooling changes to each line at each TSL, 

considering the costs of recent line upgrades. As a final verification, DOE examined what level 

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of capital investments would be required to maintain the historical value for net plant, property, 

and equipment as a ratio of total revenue. For gas-fired and electric storage water heaters at TSL 

5, DOE used the industry-wide capital conversion costs for the standard-size volumes at TSL 4. 

At TSL 5 DOE also used a separate estimate to calculate the additional capital conversion costs 

that would be required to manufacture gas-fired condensing water heaters and electric heat pump 

water heaters for rated storage volumes above 55 gallons. For oil-fired storage water heaters, 

gas-fired instantaneous water heaters, and DHE, DOE used a bottoms-up approach to estimate 

the cost of additional production equipment and changes to existing production lines that the 

industry would require at each TSL. DOE used feedback from manufacturer interviews about the 

tooling requirements at each efficiency level and product catalogs to estimate the total capital 

conversion costs for each product category at each TSL. 

DOE did not consider the provisions in the American Recovery and Reinvestment Act of 

2009 , Pub. L. 111-5, in its estimates of the capital conversion costs for all products. The 

industrial development bonds and advanced energy project tax credit programs in that Act have 

not been fully distributed, and there is insufficient information available to do a thorough 

analysis of their potential impacts. It is also unclear if manufacturers of residential water heaters, 

DHE, or pool heaters would qualify for these provisions. DOE is not aware of any manufacturers 

of products covered by this rulemaking being awarded funds from these programs (see 

www.energy.gov/recovery/ for a list of awardees). Therefore, DOE did not include the bonds or 

tax credit in its analysis for this NOPR of potential impacts on the three heating product 

industries. DOE’s estimates of the capital conversion costs for all three types of heating products 

can be found in section V.B.2 of today’s notice and in chapter 12 of the NOPR TSD. 

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b. GRIM Scenarios 

i. Residential Water Heater Standards-Case Shipments Forecasts 

The GRIM used several residential water heater shipments developed in the NIA. The 

NIA incorporated different scenarios that account for fuel switching, penetration rates of gasfired instantaneous water heaters, growth rates of ENERGY STAR products, and economic 

growth rates. To account for the likely impacts on the water heater industry of amended energy 

conservation standards, DOE used the main NIA shipment scenario. The main NIA water heater 

scenario accounted for fuel switching. In this scenario, DOE considered the potential for current 

users of electric storage water heaters to instead purchase a gas-fired storage water heater 

replacement if amended energy conservation standard for electric storage water heaters were set 

at levels that would effectively require the use of heat pumps. The main NIA scenario used the 

Reference case gas-fired instantaneous water heater market share scenario. Finally, the main NIA 

scenario used the Reference case economic growth scenario and the moderate rate of efficiency 

growth scenarios. In all standards-case shipment scenarios, DOE considered that shipments at 

efficiencies below the projected minimum standard levels would roll up to those efficiency levels 

in response to amended energy conservation standards. See section IV.F.1 of this NOPR and 

chapter 10 for more information on the residential water heater standards-case shipment 

scenarios. 

ii. Direct Heating Equipment and Pool Heater Shipment Scenarios 

For the DHE and pool heater shipments, DOE used the NIA shipments in the base case 

and the standards case. DOE also considered that shipments at efficiencies below the projected 

minimum standard levels in the base case would roll up to those efficiency levels in response to 

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amended energy conservation standards. See section IV.F.1 of this NOPR and chapter 10 of the 

NOPR TSD for additional details about the shipment scenarios. 

iii. Markup Scenarios 

In the GRIM, DOE used the MSPs estimated in the engineering analysis for each product 

class and efficiency level. The MSPs include direct manufacturing production costs (i.e., labor, 

material, and overhead estimated in DOE’s MPCs), all non-production costs (i.e., SG&A, R&D, 

shipping, and interest), along with profit. 

DOE used several standards-case markup scenarios to represent the uncertainty about the 

potential impacts on prices and profitability following the implementation of amended energy 

conservation standards. For the three types of heating products, DOE analyzed two markup 

scenarios: (1) a preservation of return on invested capital scenario, and (2) a preservation of 

operating profit scenario. 

Return on invested capital is defined as net operating profit after taxes divided by the 

total invested capital (fixed assets and working capital, or net plant, property, and equipment plus 

working capital). In the preservation of return on invested capital scenario, the manufacturer 

markups are set so that the return on invested capital the year after the compliance date of the 

amended energy conservation standards is the same as in the base case. This scenario models the 

situation in which manufacturers maintain a similar level of profitability from the investments 

required by amended energy conservation standards as they do from their current business 

operations. After standards, manufacturers have higher net operating profits but also greater 

working capital and investment requirements. Because manufacturers earn additional operating 

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profit from the investments required by the amended energy conservation standards, this scenario 

represents the high bound to profitability following standards. 

During interviews, multiple manufacturers stated that the higher production costs could 

severely harm profitability. Because of the highly competitive market, several manufacturers 

suggested that the additional costs required at higher efficiencies could not be fully passed 

through to customers. In the preservation of operating profit markup scenario, manufacturer 

markups are lowered so that only the total operating profit in absolute dollars is maintained as 

before the amended energy conservation standard. DOE implemented this scenario in GRIM by 

lowering the manufacturer markups at each TSL to yield approximately the same earnings before 

interest and taxes in the standards case in the year after the compliance date of the amended 

standards, as in the base case. This scenario represents the lower bound of industry profitability 

following amended energy conservation standards because higher production costs and the 

investments required to comply with the amended energy conservation standard do not yield 

additional operating profit. 

3. Discussion of Comments 

During the February 2009 public meeting, interested parties commented on the 

assumptions and results of the preliminary analysis. In oral and written comments, interested 

parties discussed the effects of the current economic downturn on manufacturers, the high costs 

required to educate installers and service contractors, and potential employment impacts due to 

amended energy conservation standards. DOE addresses these comments below. DOE also 

received comments on the cumulative burden of ultra-low-NOX requirements, which are 

addressed in sections IV.C and V.B.2.f. 

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a. Responses to General Comments 

AHRI stated that DOE must take into account the impacts of the current economic 

conditions on the manufacturing industry in the manufacturer impact analysis. (AHRI, Public 

Meeting Transcript, No. 34.4 at p. 19) 

In the MIA, DOE models the impacts of amended energy conservation standards on 

manufacturers of residential water heaters, DHE, and pool heaters from the base year to the end 

of the analysis period (i.e., 2010-2045 for residential water heaters and 2010-2043 for DHE and 

pool heaters). DOE notes the compliance dates for all three heating products (i.e., 2015 for 

residential water heaters and 2013 for DHE and pool heaters). Using information that only 

reflects these three industries during the current economic downturn would not be representative 

of the three heating products over the entire analysis period. DOE used the most current 

information that is publicly available in many of its estimates and analyses, inputs that take the 

current economic downturn into consideration. For example, as described in section IV.C.4.b, 

DOE uses 5-year averages for metal material prices and up-to-date prices for other raw materials 

and purchased components in its engineering analysis cost models. For today’s notice, DOE also 

updated many of its LCC and NIA assumptions to better reflect the most recent information (e.g., 

AEO2009) and in response to comments from interested parties (sections IV.E and IV.F). For the 

MIA, DOE uses financial parameters like standard R&D to model the cash-flow impacts on the 

water heater, DHE, and pool heater industries. To calculate the estimates of the financial 

parameters used in the GRIMs, DOE examined 6 years of SEC 10-K data. While DOE updated 

some of these GRIM estimates based on interviews with manufacturers, these changes were 

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made to better reflect the parameters that are representative of each industry over the long-term 

and are not specifically attributable to current economic conditions. 

b. Water Heater Comments 

BWC and AHRI stated that the economic downturn has limited the funding available for 

R&D and the tooling necessary to develop and manufacture more-efficient products. (BWC, No. 

46 at p. 3; AHRI, No. 33 at p. 1) Noritz America Corporation also stated that the economy has 

greatly affected manufacturers’ bottom line and ability to support R&D. (Noritz, No. 36 at p. 3) 

For today’s notice, DOE includes the capital and product conversion costs that would be 

required to meet the entire industry demand at each TSL. While DOE agrees that the current 

economic downturn may affect the funding for R&D and capital expenditures in the near term, 

DOE notes that the compliance date for the residential water heater standard is 2015. In the 

GRIM, DOE allocates its estimates of the product conversion and capital conversion costs in 

between the announcement of the final rule adopting energy conservation standard (estimated to 

be March 2010) and the compliance date requiring compliance with the energy conservation 

standards for water heaters. DOE also assumes that more of the capital conversion and product 

conversion costs will occur closer to the compliance date than the announcement date. Because 

most of the product conversion and capital conversion costs are allocated several years in the 

future, it is expected that the economic conditions at that time will be different than they are 

currently. 

BWC argued that as new technologies are developed, manufacturers must incur 

additional costs to educate installers and service contractors. (BWC, No. 46 at p. 3) 

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DOE agrees with BWC that a higher energy conservation standard could require 

manufacturers to incur costs to educate installers and service contractors, especially if the 

products have to change dramatically to accommodate amended energy conservation standards. 

During interviews, manufacturers indicated that significant resources are required to educate 

installers and service contractors when a new product is introduced. The resources required are 

even greater when the new product involves a new technology or a new mode of operation. For 

example, an energy conservation standard that eliminates atmospheric gas-fired storage water 

heaters would have such an impact on manufacturers. Product conversion costs are one-time 

investments which encompass research, development, testing, and marketing, focused on making 

product designs comply with the amended energy conservation standard. Hence, DOE includes 

an estimate of the cost to manufacturers to educate installers and service contractors in the 

product conversion costs at each TSL. 

Bock asserted that the ENERGY STAR program will affect consumer purchasing 

patterns. Bock commented that ENERGY STAR, which ignored oil-fired storage water heaters, 

caused a loss of market share, a reduction in shipments, and a decrease in employment for oilfired storage water heater manufacturers. (Bock, No. 53 at p. 3) 

DOE agrees that a reduction in oil-fired storage water heater shipments could affect 

employment at oil-fired manufacturers’ plants. However, DOE does not believe that the 

proposed energy conservation standard will cause a reduction in oil-fired storage water heater 

shipments. For example, today’s proposed energy conservation standards increase the installed 

price of electric storage water heaters, gas storage water heaters, and instantaneous gas-fired 

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water heaters by roughly $132, $101, and $588, respectively over the current baseline products. 

The installed cost of an oil-fired storage water heater increases by only $61. DOE does not 

believe that these minimum price increases for consumers would distort the market such that 

consumers would elect to replace oil-fired storage water heaters with another type of water 

heater. DOE addresses the direct employment impacts due to standards in section V.B.2.d. 

4. Manufacturer Interviews 

DOE interviewed manufacturers representing over 95 percent of residential storage water 

heater sales, about 50 percent of gas-fired instantaneous water heater sales, approximately 99 

percent of traditional DHE sales (gas wall fan, gas wall gravity, gas floor, and gas room DHE), 

over 50 percent of gas hearth DHE sales, and about 75 percent of pool heater sales. These 

interviews were beyond those DOE conducted as part of the engineering analysis. DOE used 

these interviews to tailor each GRIM to incorporate unique financial characteristics for each 

industry. DOE contacted companies from its database of manufacturers, which provided a 

representative sample of each industry. All interviews provided information that DOE used to 

evaluate the impacts of potential amended energy conservation standards on manufacturer cash 

flows, manufacturing capacities, and employment levels. 

Before each telephone interview or site visit, DOE provided company representatives 

with an interview guide that included the topics for which DOE sought input. The MIA interview 

topics included: (1) key issues to this rulemaking; (2) a company overview and organizational 

characteristics; (3) manufacturer production costs and selling prices; (4) manufacturer markups 

and profitability; (5) shipment projections and market shares; (6) product mix; (7) financial 

parameters; (8) conversion costs; (9) cumulative regulatory burden; (10) direct employment 

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impact assessment; (11) exports, foreign competition, and outsourcing; (12) consolidation; and 

(13) impacts on small business. The MIA interview guide for storage water heaters contained 

three additional sections: (1) ultra-low-NOX water heaters; (2) unit shipping methods and 

associated costs; and (3) alternative energy efficiency equations. Appendix 12A of the NOPR 

TSD contains the five interview guides DOE used to conduct the MIA interviews. 

In the manufacturer interviews, DOE asked manufacturers to describe their major 

concerns about this rulemaking. The following sections describe the most significant key issues 

manufacturers identified by manufacturers. DOE also includes additional concerns in chapter 12 

of the TSD. DOE’s responses are provided where relevant in today’s notice. 

a. Storage Water Heater Key Issues 

i. Fuel Switching 

Gas-fired storage, electric storage, and oil-fired storage water heater manufacturers are 

concerned that this energy conservation standard rulemaking could cause fuel switching. While 

most storage water heater manufacturers also sell gas-fired instantaneous water heaters, storage 

manufacturers are concerned that a more aggressive standard on gas-fired and electric storage 

units could lower the first cost differential of gas-fired instantaneous water heaters and increase 

their market penetration. Increased penetration of gas-fired instantaneous water heaters would 

lower the shipments of storage water heaters, resulting in lower profitability and fewer shipments 

for manufacturers that focus on storage water heaters, especially if they lose market share to 

companies that exclusively manufacture instantaneous water heaters. 

ii. Ultra-Low-NOX Requirements 

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Manufacturers that make gas-fired storage water heaters are concerned about the large 

product development costs to meet the ultra-low-NOX requirements in some regions of the 

Southwest. In particular, manufacturers are concerned that higher energy factors, lower NOX 

emissions, and compliance with existing safety regulations are often at odds. Manufacturers also 

stated that the higher cost of the ultra-low-NOX gas storage water heaters would hurt consumers 

in those regions and could cause them to switch to less expensive electric storage units. 

iii. Profitability 

Manufacturers stated that amended energy conservations standards could affect 

profitability. At any TSL, manufacturers will be forced to discontinue a certain percentage of 

their existing products and make potentially significant product and plant modifications. If 

manufacturers earn a lower markup for more-efficient products after the amended energy 

conservation standard, their profit margin would decrease. Energy conservation standards could 

also harm profitability by eliminating up-sell opportunities to more-efficient units that earn a 

greater absolute profit. Finally, while manufacturers generally agree with DOE’s estimate of 

manufacturer production costs, many noted that their actual product offerings are more 

segmented into multiple models made at various production locations. Multiple product offerings 

could make it more difficult to reach the price points DOE calculates. If production costs were 

higher, markups would be lower than the manufacturer markup DOE assumes and profitability 

would decrease. 

iv. Appropriateness of Heat Pump Water Heaters 

Heat pump water heaters are effectively required for all rated storage volumes at TSL 6 

and TSL 7 and for a portion of the market at TSL 5 for electric storage water heaters to meet the 

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specified efficiency level. Most electric storage water heater manufacturers disagreed with 

DOE’s decision to include heat pump water heaters in the electric storage water heater product 

class. In addition, all electric storage water heater manufacturers agreed that this technology is 

only appropriate for the ENERGY STAR level, not a minimum required efficiency. While many 

manufacturers intend to or currently are designing heat pump water heaters in response to the 

ENERGY STAR requirements, manufacturers believe that setting a minimum standard during 

the design phase is not appropriate and could cause many serious and negative consequences. 

Manufacturers listed many reasons why this technology is not ready to be applied across 

the millions of electric storage water heaters needed to satisfy demand. A significant problem is 

that heat pump water heaters could not be installed in a large portion of existing homes (e.g., 30 

to 40 percent of homes), without incurring tremendous costs for affected consumers to modify 

their existing structures. The technology also has not been fully developed and has not yet been 

proven reliable for large-scale manufacturing. Some manufacturers are concerned that any 

problems that arise with applying the technology across millions of electric storage water heaters 

that could not be proven by the compliance date of the rule would cause significant harm to their 

industry due to the anti-backsliding provision in EPCA. Manufacturers stated that other problems 

could arise with the production of heat pump water heaters if the standard were set at TSL 6 or 

TSL 7. For example, there is almost no existing capacity to manufacture these water heaters, 

especially on the scale that an energy conservation standard would require. Requiring over 4 

million annual shipments in 2015 could lead to acquisition problems because component 

suppliers are not prepared for such a jump in demand. In particular, acquiring sufficient 

compressors, thermal expansion valves, and other purchased parts to meet market demand could 

be a challenge. 

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Manufacturers also added that setting the energy conservation standard at a level 

effectively requiring the use of heat pump technology would cause many negative impacts in the 

industry, even if the technology were proven by the compliance date specified in the final rule. 

Because of the increased labor required, manufacturers would have to consider shifting a 

considerable portion of production overseas to obtain viable production costs, as was true for the 

residential air-conditioning industry. Domestic employment in the industry would be affected 

because only part of the production would likely remain in the United States after the compliance 

date of the amended energy conservation standard. 

Manufacturers also stated that they would incur significant conversion costs if the 

standard level effectively mandates heat pump water heaters, for the reasons explained below. 

Every main assembly line and feeder line would need modifications to integrate the new 

assembly into existing production facilities. Finally, manufacturers would face a significant 

challenge to retrain their service technicians and installers for a completely new technology. 

Because the technology has not been fully developed, the skills needed to service and install heat 

pump water heaters are unknown. However, manufacturers indicated that a combination of 

plumbing and HVAC skills would be required that do not exist today. 

v. Capital Conversion Costs for Oil-Fired Storage Water Heaters 

Oil-fired storage water heater manufacturers indicated that capital conversion costs for 

oil-fired storage water heaters at higher efficiency levels, while perhaps not appearing 

prohibitively large on a nominal basis, are extremely significant relative to the volume of oilfired water heater shipments. At any level above TSL 1, at least one manufacturer with 

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substantial market share indicated that there is a real risk that these capital and product 

conversion costs could cause it to exit the market. 

b. Gas-Fired Instantaneous Water Heater Key Issues 

i. Potential Market Distortion 

Manufacturers stated that amended energy conservation standard could greatly affect the 

market penetration of gas-fired instantaneous water heaters. If the prices were greatly increased 

relative to storage water heaters, market penetration could be slowed. In addition, a drastic 

increase in the required efficiency (at TSL 7) could disrupt current arrangements with overseas 

suppliers or parent companies and limit product availability in the United States. 

ii. Ultra-Low-NOX Requirements 

Manufacturers of gas-fired instantaneous water heaters expressed great concern about the 

conflicting requirements of higher energy factor requirements and pending ultra-low-NOX 

requirements. At most efficiency levels, manufacturers commented that there is a tradeoff in 

burner design between higher efficiency and lower NOX emissions. Manufacturers indicated that 

they have not found a solution and are very concerned about concurrently meeting the ultra-lowNOX requirements and amended energy conservation standards. 

c. Direct Heating Equipment Key Issues (Gas Wall Fan, Gas Wall Gravity, Gas Floor, 

and Gas Room Direct Heating Equipment) 

i. Consumer Impacts 

Manufacturers remarked that energy conservation standards could hurt consumers, 

arguing that many of existing installations cannot be replaced with more-efficient units because 

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of space considerations. Customers that choose these units would either have to pay for structural 

modifications or switch to a different heat source. Some manufacturers also noted that 

improvements in efficiency for the most common type of traditional DHE (gas wall gravity 

DHE) have long paybacks at any TSL. 

All manufacturers stated that gas wall gravity and gas room DHE provide a unique utility 

by operating in the event of a power failure. Manufacturers stated that consumers would be hurt 

if these products required line power, because it would leave many without a backup source of 

heat. 

ii. Significant Capital and Product Development Costs 

Manufacturers stated that any product conversion or capital conversion cost would be 

difficult to justify because of the very low shipment volumes of each product line. Manufacturers 

remarked that any required investments could force them to reduce their product offerings at best 

and permanently exit the market at worst. Due to the large number of product offerings that 

would need to be recertified and/or redesigned, some manufacturers argued that 3 years would 

not be enough lead time. Finally, because shipment volumes are so low, any investment would 

significantly add to the final cost of the product, assuming that manufacturers could pass part of 

the increased cost on to consumers. 

Manufacturers are also concerned that higher production costs could drive more 

consumers to purchase a central system rather than replace their failed direct heating system. If 

shipments declined at all, manufacturers stated they would be less able to justify the required 

investment to upgrade products and product lines, which would hurt their industry further. All 

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manufacturers said that potential energy conservation standards are a real threat to their business 

and could cause them to exit the market completely. 

d. Direct Heating Equipment Key Issues (Gas Hearth Direct Heating Equipment) 

i. Loss of Aesthetic Appeal for Decorative Products 

According to manufacturers, all gas hearth products have an aesthetic function in addition 

to a heating function. In fact, manufacturers stated that the primary function of most gas hearth 

products covered by this rulemaking is the ambiance and aesthetic appeal provided by the flame. 

Gas hearth DHE are used mostly to zone heat when occupants are in close proximity or to 

supplement a central heating system, but are used as a primary heating source only in very rare 

cases. 

Because gas hearth DHE are mostly decorative items in residences, manufacturers 

believe that energy conservation standards could have a different impact on their industry than 

the water heater industry, for example. Gas hearth manufacturers stated that the utility of the 

other strictly heating products covered by today’s rule has little to do with the appearance of the 

products and would not be impacted at any standard level. For example, the consumer utility 

from water heaters would not be impacted by amended energy conservation standards as long as 

hot water is still delivered. However, the relevant manufacturers were greatly concerned that 

potential energy conversation standards for gas hearth DHE could harm their industry and 

consumers in qualitative ways, in addition to the direct impacts on industry value. Their 

customers’ needs are related to the size, shape, and appearance of the flame, and for these 

customers, efficiency is not usually a concern, given such products’ low usage patterns. 

Manufacturers stated that they earn premiums for aesthetic features such as better-looking flames 

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and more attractive masonry, rather than higher efficiency. Multiple manufacturers stated that the 

yellow flames that consumers look for in a log set depend on a rich gas-to-air mixture, which 

inherently limits the achievable energy efficiency. Hence, at higher efficiency levels, it becomes 

more difficult to improve efficiency and maintain a desirable flame color, an impact that is hard 

to measure and which could have a significant detrimental effect on the industry. 

ii. Product Switching and Profitability 

Because the aesthetic appeal of the unit and the flame are critical features, manufacturers 

believed that overly-stringent energy conservation standards could cause customers to switch to 

non-covered hearth products, such as wood-burning stoves or strictly decorative units, if the 

energy conservation standards greatly raised prices. Finally, manufacturers stated that a 

significant portion of gas hearth products are purchased by builders. Because the appearance of 

the units and the flame are more critical features than efficiency, manufacturers believed that 

higher costs could cause more builders to purchase strictly decorative products that are not 

covered by this rulemaking. 

Besides higher prices potentially causing a switching to non-covered products, 

manufacturers were also concerned that higher standards had the potential to lower overall 

demand for gas hearth products. At higher costs, manufacturers believe that customers would no 

longer purchase inserts for existing homes or that builders would make gas hearth products in 

new homes an option rather than a standard feature. Manufacturers also believe that a shrinking 

market would reduce profits. 

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e. Pool Heater Key Issues 

i. Impacts on Consumers 

Manufacturers stated that an amended energy conservation standards set above an 

efficiency level achievable using atmospheric technology (TSL 3 through TSL 6) could hurt 

consumers. According to manufacturers, customers would not recoup the initial higher costs with 

lower utility bills at these TSLs. Because most residential pool heaters are a luxury item with low 

usage patterns, most customers do not purchase units at TSL 4 and above. Thus, manufacturers 

stated that more-efficient residential pool heaters are only appropriate in commercial settings 

(e.g., hotels, gyms) because the higher usage allows such customers to recoup the higher initial 

costs. 

ii. Future Shipment Trends 

Manufacturers commented that pool heater shipments follow new housing starts. Because 

the new housing market is down, manufacturers have lowered their projections for future pool 

heater sales as well. Manufacturers also do not expect future shipments to return to historical 

levels, as recent new housing starts have increasingly been on smaller lots that do not have the 

room to accommodate swimming pools. 

Manufacturers are concerned that amended energy conservation standards could further 

decrease future sales. Because pool heaters are not a necessity, the higher initial cost could 

dissuade some consumers from replacing a failed unit or adding a heater to a new pool or spa. 

Manufacturers are also concerned that a higher price point for gas- fired pool heaters could hurt 

future shipments by making alternatives like solar or heat pump pool heaters comparatively 

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cheaper. Manufacturers stated that this trend is already a concern because a few States and 

utilities have offered subsidies for solar water heaters. 

iii. Future NOX Emission Requirements 

According to manufacturers, residential gas-fired pool heaters are currently exempt from 

ultra-low NOX requirements in the Southwest air quality management districts. However, most 

manufacturers voiced a concern over potential future requirements. If air quality management 

districts set more restrictive NOX requirements in the future, some manufacturers may be 

required to incur a costly redesign of their burner systems. 

I. Employment Impact Analysis 

Employment impacts consist of direct and indirect impacts. Direct employment impacts 

are any changes in the number of employees of manufacturers of the appliance products that are 

the subject of this rulemaking, their suppliers, and related service firms. Indirect employment 

impacts are changes in employment in the larger economy that occur due to the shift in 

expenditures and capital investment caused by the purchase and operation of more-efficient 

appliances. The MIA addresses the direct employment impacts that concern manufacturers of the 

three heating products. 

Indirect employment impacts from standards consist of the net jobs created or eliminated 

in the national economy, other than in the manufacturing sector being regulated, due to: (1) 

reduced spending by end users on energy (electricity, gas—including liquefied petroleum gas— 

and oil); (2) reduced spending on new energy supply by the utility industry; (3) increased 

spending on new products to which the new standards apply; and (4) the effects of those three 

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factors throughout the economy. DOE expects the net monetary savings from standards to be 

redirected to other forms of economic activity. DOE also expects these shifts in spending and 

economic activity to affect the demand for labor in the short term, as explained below. 

One method for assessing the possible effects on the demand for labor of such shifts in 

economic activity is to compare sectoral employment statistics developed by the Labor 

Department’s Bureau of Labor Statistics (BLS). (Data on industry employment, hours, labor 

compensation, value of production, and the implicit price deflator for output for these industries 

are available upon request by calling the Division of Industry Productivity Studies (202-691­

5618) or by sending a request by e-mail to dipsweb@bls.gov. See 

www.bls.gov/news.release/prin1.nr0.htm.) The BLS regularly publishes its estimates of the 

number of jobs per million dollars of economic activity in different sectors of the economy, as 

well as the jobs created elsewhere in the economy by this same economic activity. Data from 

BLS indicate that expenditures in the utility sector generally create fewer jobs (both directly and 

indirectly) than expenditures in other sectors of the economy. There are many reasons for these 

differences, including wage differences and the fact that the utility sector is more capital 

intensive and less labor intensive than other sectors. See Bureau of Economic Analysis, Regional 

Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II), U.S. 

Department of Commerce, 1992. 

Energy conservation standards have the effect of reducing consumer utility bills. Because 

reduced consumer expenditures for energy likely lead to increased expenditures in other sectors 

of the economy, the general effect of efficiency standards is to shift economic activity from a 

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less labor-intensive sector (i.e., the utility sector) to more labor-intensive sectors (e.g., the retail 

and manufacturing sectors). 

In developing the preliminary analysis and today’s NOPR, DOE estimated indirect 

national employment impacts using an input/output model of the U.S. economy called Impact of 

Sector Energy Technologies (ImSET). ImSET is a spreadsheet model of the U.S. economy that 

focuses on 188 sectors most relevant to industrial, commercial, and residential building energy 

use. (See J. M. Roop, M. J. Scott, and R. W. Schultz, ImSET: Impact of Sector Energy 

Technologies, PNNL-15273, Pacific Northwest National Laboratory, 2005). ImSET is a specialpurpose version of the “U.S. Benchmark National Input-Output” (I-O) model designed to 

estimate the national employment and income effects of energy-saving technologies. The ImSET 

software includes a computer-based I-O model with structural coefficients to characterize 

economic flows among the 188 sectors. ImSET’s national economic I-O structure is based on a 

1997 U.S. benchmark table (See Lawson, Ann M., et al., “Benchmark Input-Output Accounts of 

the U.S. Economy, 1997,” Survey of Current Business, Dec. 2002, pp. 19–117.) Chapter 13 of 

the NOPR TSD presents further details on the employment impact analysis. 

J. Utility Impact Analysis 

The utility impact analysis included an analysis of the potential effects of amended 

energy conservation standards for the three types of heating products on the electric and gas 

utility industries. For this analysis, DOE used NEMS-BT to generate forecasts of electricity and 

natural gas consumption, electricity generation by plant type, and electric generating capacity by 

plant type. DOE conducts the utility impact analysis as a scenario that departs from the latest 

AEO Reference case. In other words, the energy savings impacts from amended energy 

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conservation standards are modeled using NEMS-BT to generate forecasts that deviate from the 

AEO Reference case. Chapter 13 of the NOPR TSD presents details on the utility impact 

analysis. 

NEEA and NPCC urged DOE to consider the impact of gas-fired instantaneous water 

heaters on local gas distribution companies’ ability to meet hot water demand during peak 

periods, and the possibility that they may have to invest in shoring up system peak capacity, 

adding significant upward pressure on rates. (NEEA and NPCC, No. 42 at p. 9) DOE 

acknowledges that growing use of gas-fired instantaneous water heaters could contribute to peak 

demand problems, and that higher-efficiency gas-fired instantaneous water heaters could 

ameliorate the problem. However, DOE currently does not have adequate data to reliably 

quantify the potential impacts. 

K. Environmental Analysis 

DOE has prepared a draft environmental assessment (EA) pursuant to the National 

Environmental Policy Act and the requirements of 42 U.S.C. 6295(o)(2)(B)(i)(VI) and 6316(a) 

to determine the environmental impacts of the proposed standards. DOE estimated the impacts 

on power sector emissions of CO2, NOX, and Hg using the NEMS-BT model. Because the onsite operation of non-electric heating products requires use of fossil fuels and results in emissions 

of CO2, NOX and sulfur dioxide (SO2), DOE also accounted for the reduction in these emissions 

due to standards at the sites where these appliances are used. 

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1. Impacts of Standards on Emissions 

In the EA, NEMS-BT is run similarly to the AEO NEMS, except that heating product 

energy use is reduced by the amount of energy saved (by fuel type) due to each TSL. The inputs 

of national energy savings come from the NIA spreadsheet model; the output is the forecasted 

physical emissions at each TSL. The net benefit of the standard is the difference between 

emissions estimated by NEMS-BT at each TSL and the AEO Reference Case. 

NEMS-BT tracks CO2 emissions using a detailed module that provides results with broad 

coverage of all sectors and inclusion of interactive effects. For the preliminary TSD, DOE used 

AEO2008. For today’s NOPR, DOE used the AEO2009 NEMS (stimulus version). For the final 

rule, DOE intends to revise the emissions analysis using the most current AEO. 

DOE has preliminarily determined that SO2 emissions from affected Electric Generating 

Units (EGUs) are subject to nationwide and regional emissions cap and trading programs that 

create uncertainty about the standards’ impact on SO2 emissions. Title IV of the Clean Air Act 

sets an annual emissions cap on SO2 for all affected EGUs. SO2 emissions from 28 eastern States 

and the District of Columbia (D.C.) are also limited under the Clean Air Interstate Rule (CAIR, 

published in the Federal Register on May 12, 2005. 70 FR 25162 (May 12, 2005), which creates 

an allowance-based trading program that will gradually replace the Title IV program in those 

States and D.C. (The recent legal history surrounding CAIR is discussed below.) The attainment 

of the emissions caps is flexible among EGUs and is enforced through the use of emissions 

allowances and tradable permits. Energy conservation standards could lead EGUs to trade 

allowances and increase SO2 emissions that offset some or all SO2 emissions reductions 

attributable to the standard. DOE is not certain that there will be reduced overall SO2 emissions 

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from the standards. The NEMS-BT modeling system that DOE used to forecast emissions 

reductions currently indicates that no physical reductions in power sector emissions would occur 

for SO2. The above considerations prevent DOE from estimating SO2 reductions from standards 

at this time. 

Even though DOE is not certain that there will be reduced overall emissions from the 

standard, there may be an economic benefit from reduced demand for SO2 emission allowances. 

Electricity savings decrease the generation of SO2 emissions from power production, which can 

lessen the need to purchase SO2 emissions allowance credits, and thereby decrease the costs of 

complying with regulatory caps on emissions. 

Much like SO2, NOX emissions from 28 eastern States and the District of Columbia 

(D.C.) are limited under the CAIR. Although CAIR has been remanded to EPA by the D.C. 

Circuit, it will remain in effect until it is replaced by a rule consistent with the Court’s July 11, 

2008, opinion in North Carolina v. EPA. 531 F.3d 896 (D.C. Cir. 2008); see also North Carolina 

v. EPA, 550 F.3d 1176 (D.C. Cir. 2008). Because all States covered by CAIR opted to reduce 

NOX emissions through participation in cap-and-trade programs for electric generating units, 

emissions from these sources are capped across the CAIR region. 

In the 28 eastern States and D.C. where CAIR is in effect, DOE’s forecasts indicate that 

no NOX emissions reductions will occur because of the permanent cap. Energy conservation 

standards have the potential to produce environmentally-related economic impact in the form of 

lower prices for emissions allowance credits, if they were large enough. However, DOE has 

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preliminarily concluded that the proposed standard would not have such an effect because the 

estimated reduction in NOX emissions or the corresponding allowance credits in States covered 

by the CAIR cap would be too small to affect allowance prices for NOX under the CAIR. 

The proposed standard would reduce NOX emissions in those 22 States not affected by 

the CAIR. As a result, DOE used the NEMS–BT to forecast emission reductions from the 

standards that are considered in today’s NOPR. 

Similar to emissions of SO2 and NOX, future emissions of Hg would have been subject to 

emissions caps. The Clean Air Mercury Rule (CAMR) would have permanently capped 

emissions of mercury for new and existing coal-fired plants in all States beginning in 2010 (70 

FR 28606). However, the CAMR was vacated by the D.C. Circuit in its decision in New Jersey 

v. Environmental Protection Agency. 517 F 3d 574 (D.C. Cir. 2008) Thus, DOE was able to use 

the NEMS-BT model to estimate the changes in Hg emissions resulting from the proposed rule. 

EEI stated that DOE’s analysis of emissions from electric power generation should 

account for the rise in renewable portfolio standards and the possibility of an upcoming CO2 cap 

and trade program, both of which would reduce the amount of emissions produced per kWh 

electricity generated. (EEI, No. 40 at p. 6) DOE’s projections of CO2 emissions from electric 

power generation are based on the AEO2009 version of NEMS. The emissions projections 

reflect market factors and policies that affect utility choice of power plants for electricity 

generation, including existing renewable portfolio standards. Because of the speculative nature 

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of forecasting future regulations, DOE does not include the impact of possible future regulations 

in its forecasts. 

EEI stated that if DOE examines changes in power plant emissions, then it should also 

examine changes in the emissions associated with oil extraction (domestic and overseas), crude 

oil transportation (sea and land-based), natural gas flaring, oil refining, refined oil delivery, 

natural gas production, natural gas delivery, natural gas delivery system methane leaks, propane 

production and delivery, and emissions associated with the extraction and importation of 

liquefied natural gas. (EEI, No. 40 at p. 6) 

Emissions occur at each stage of the extraction, conversion, and delivery of the energy 

supply chain. Nonetheless, emissions are dominated by power plant emissions in the case of 

electric appliances and in-house emissions in the case of natural gas and oil-fired appliances, so 

DOE focuses on those points. 

The operation of non-electric heating products requires use of fossil fuels and results in 

emissions of CO2, NOX and SO2 at the sites where these appliances are used. NEMS–BT 

provides no means for estimating such emissions. DOE calculated the effect of the proposed 

standards on the above site emissions based on emissions factors derived from the literature. 

2. Valuation of CO2 Emissions Reductions 

DOE received comments on the desirability of valuing the CO2 emissions reductions that 

result from standards. NRDC stated that DOE must account for the value of avoided carbon 

emissions. (NRDC, No. 48 at p. 4) NEEA and NPCC stated that it would be inappropriate to 

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assign a value of zero to avoided carbon emissions. (NEEA and NPCC, No. 42 at p. 10) 

Earthjustice stated that DOE must consider well-established literature on the value of CO2 

emissions to consider reduced emissions in States that will remain outside CO2 reduction 

regimes. (Earthjustice, No. 47 at p. 4) 

For today’s NOPR, DOE is relying on a new set of values recently developed by an 

interagency process that conducted a thorough review of existing estimates of the social cost of 

carbon (SCC). The SCC is intended to be a monetary measure of the incremental damage 

resulting from greenhouse gas (GHG) emissions, including, but not limited to, net agricultural 

productivity loss, human health effects, property damages from sea level rise, and changes in 

ecosystem services. Any effort to quantify and to monetize the harms associated with climate 

change will raise serious questions of science, economics, and ethics. But with full regard for the 

limits of both quantification and monetization, the SCC can be used to provide estimates of the 

social benefits of reductions in GHG emissions. 

For at least three reasons, any single estimate of the SCC will be contestable. First, 

scientific and economic knowledge about the impacts of climate change continues to grow. With 

new and better information about relevant questions, including the cost, burdens, and possibility 

of adaptation, current estimates will inevitably change over time. Second, some of the likely and 

potential damages from climate change—for example, the value society places on adverse 

impacts on endangered species—are not included in all of the existing economic analyses. These 

omissions may turn out to be significant in the sense that they may mean that the best current 

estimates are too low. Third, controversial ethical judgments, including those involving the 

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treatment of future generations, play a role in judgments about the SCC (see in particular the 

discussion of the discount rate, below). 

To date, regulations have used a range of values for the SCC. For example, a regulation 

proposed by the U.S. Department of Transportation (DOT) in 2008 assumed a value of $7 per 

ton CO2 (2006$) for 2011 emission reductions (with a range of $0-14 for sensitivity analysis). 

Regulation finalized by DOE used a range of $0-$20 (2007$). Both of these ranges were 

designed to reflect the value of damages to the United States resulting from carbon emissions, or 

the “domestic” SCC. In the final Model Year 2011 Corporate Average Fuel Economy rule, DOT 

used both a domestic SCC value of $2/t CO2 and a global SCC value of $33/t CO2 (with 

sensitivity analysis at $80/tCO2), increasing at 2.4 percent per year thereafter. 

In recent months, a variety of agencies have worked to develop an objective methodology 

for selecting a range of interim SCC estimates to use in regulatory analyses until improved SCC 

estimates are developed. The following summary reflects the initial results of these efforts and 

proposes ranges and values for interim social costs of carbon used in this rule. It should be 

emphasized that the analysis described below is preliminary. These complex issues are of course 

undergoing a process of continuing review. Relevant agencies will be evaluating and seeking 

comment on all of the scientific, economic, and ethical issues before establishing final estimates 

for use in future rulemakings. 

The interim judgments resulting from the recent interagency review process can be 

summarized as follows: (a) DOE and other Federal agencies should consider the global benefits 

associated with the reductions of CO2 emissions resulting from efficiency standards and other 

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similar rulemakings, rather continuing the previous focus on domestic benefits; (b) these global 

benefits should be based on SCC estimates (in 2007$) of $55, $33, $19, $10, and $5 per ton of 

CO2 equivalent emitted (or avoided) in 2007 (in calculating the benefits reported in this NOPR, 

DOE has escalated the 2007$ values to 2008$ for consistency with other dollar values presented 

in this notice, resulting in SCC estimates (in 2008$) of approximately $5, $10, $20, $34, and 

$56); (c) the SCC value of emissions that occur (or are avoided) in future years should be 

escalated using an annual growth rate of 3 percent from the current values); and (d) domestic 

benefits are estimated to be approximately 6 percent of the global values. These interim 

judgments are based on the following considerations. 

1.	 Global and domestic estimates of SCC. Because of the distinctive nature of the climate 

change problem, estimates of both global and domestic SCC values should be considered, 

but the global measure should be “primary.” This approach represents a departure from 

past practices, which relied, for the most part, on measures of only domestic impacts. As 

a matter of law, both global and domestic values are permissible; the relevant statutory 

provisions are ambiguous and allow the agency to choose either measure. (It is true that 

Federal statutes are presumed not to have extraterritorial effect, in part to ensure that the 

laws of the United States respect the interests of foreign sovereigns. But use of a global 

measure for the SCC does not give extraterritorial effect to Federal law and hence does 

not intrude on such interests.) 

It is true that under OMB guidance, analysis from the domestic perspective is required, 

while analysis from the international perspective is optional. The domestic decisions of 

one nation are not typically based on a judgment about the effects of those decisions on 

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other nations. But the climate change problem is highly unusual in the sense that it 

involves (a) a global public good in which (b) the emissions of one nation may inflict 

significant damages on other nations and (c) the United States is actively engaged in 

promoting an international agreement to reduce worldwide emissions. 

In these circumstances, the global measure is preferred. Use of a global measure reflects 

the reality of the problem and is expected to contribute to the continuing efforts of the 

United States to ensure that emission reductions occur in many nations. 

Domestic SCC values are also presented. The development of a domestic SCC is greatly 

complicated by the relatively few region- or country-specific estimates of the SCC in the 

literature. One potential estimate comes from the DICE (Dynamic Integrated Climate 

Economy, William Nordhaus) model. In an unpublished paper, Nordhaus (2007) 

produced disaggregated SCC estimates using a regional version of the DICE model. He 

reported a U.S. estimate of $1/tCO2 (2007 value, 2007$), which is roughly 11 percent of 

the global value. 

An alternative source of estimates comes from a recent EPA modeling effort using the 

FUND (Climate Framework for Uncertainty, Negotiation and Distribution, Center for 

Integrated Study of the Human Dimensions of Global Change) model. The resulting 

estimates suggest that the ratio of domestic to global benefits varies with key parameter 

assumptions. With a 3 percent discount rate, for example, the US benefit is about 6 

percent of the global benefit for the “central” (mean) FUND results, while, for the 

corresponding “high” estimates associated with a higher climate sensitivity and lower 

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global economic growth, the US benefit is less than 4 percent of the global benefit. With 

a 2 percent discount rate, the U.S. share is about 2 to 5 percent of the global estimate. 

Based on this available evidence, a domestic SCC value equal to 6 percent of the global 

damages is used in this rulemaking. This figure is in the middle of the range of available 

estimates from the literature. It is recognized that the 6 percent figure is approximate and 

highly speculative and alternative approaches will be explored before establishing final 

values for future rulemakings. 

2.	 Filtering existing analyses. There are numerous SCC estimates in the existing literature, 

and it is legitimate to make use of those estimates to produce a figure for current use. A 

reasonable starting point is provided by the meta-analysis in Richard Tol, “The Social 

Cost of Carbon: Trends, Outliers, and Catastrophes, Economics: The Open-Access, 

Open-Assessment E-Journal,” Vol. 2, 2008-25. http://www.economicsejournal.org/economics/journalarticles/2008-25 (2008). With that starting point, it is 

proposed to “filter” existing SCC estimates by using those that (1) are derived from peerreviewed studies; (2) do not weight the monetized damages to one country more than 

those in other countries; (3) use a “business as usual” climate scenario; and (4) are based 

on the most recent published version of each of the three major integrated assessment 

models (IAMs): FUND, DICE and PAGE (Policy Analysis of the Greenhouse Effect). 

Proposal (1) is based on the view that those studies that have been subject to peer review 

are more likely to be reliable than those that have not been. Proposal (2) is based on a 

principle of neutrality and simplicity; it does not treat the citizens of one nation 

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differently on the basis of speculative or controversial considerations. Proposal (3) stems 

from the judgment that as a general rule, the proper way to assess a policy decision is by 

comparing the implementation of the policy against a counterfactual state where the 

policy is not implemented. A departure from this approach would be to consider a more 

dynamic setting in which other countries might implement policies to reduce GHG 

emissions at an unknown future date, and the United States could choose to implement 

such a policy now or in the future. 

Proposal (4) is based on three complementary judgments. First, the FUND, PAGE, and 

DICE models now stand as the most comprehensive and reliable efforts to measure the 

damages from climate change. Second, the latest versions of the three IAMs are likely to 

reflect the most recent evidence and learning, and hence they are presumed to be superior 

to those that preceded them. It is acknowledged that earlier versions may contain 

information that is missing from the latest versions. Third, any effort to choose among 

them, or to reject one in favor of the others, would be difficult to defend at this time. In 

the absence of a clear reason to choose among them, it is reasonable to base the SCC on 

all of them. 

The agency is keenly aware that the current IAMs fail to include all relevant information 

about the likely impacts from greenhouse gas emissions. For example, ecosystem 

impacts, including species loss, do not appear to be included in at least two of the models. 

Some human health impacts, including increases in food-borne illnesses and in the 

quantity and toxicity of airborne allergens, also appear to be excluded. In addition, there 

has been considerable recent discussion of the risk of catastrophe and of how best to 

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account for worst-case scenarios. It is not clear whether the three IAMs take adequate 

account of these potential effects. 

3.	 Use a model-weighted average of the estimates at each discount rate. At this time, there 

appears to be no scientifically valid reason to prefer any of the three major IAMs (FUND, 

PAGE, and DICE). Consequently, the estimates are based on an equal weighting of 

estimates from each of the models. Among estimates that remain after applying the filter, 

the average of all estimates within a model is derived. The estimated SCC is then 

calculated as the average of the three model-specific averages. This approach ensures that 

the interim estimate is not biased towards specific models or more prolific authors. 

4.	 Apply a 3 percent annual growth rate to the chosen SCC values. SCC is assumed to 

increase over time, because future emissions are expected to produce larger incremental 

damages as physical and economic systems become more stressed as the magnitude of 

climate change increases. Indeed, an implied growth rate in the SCC is produced by most 

studies that estimate economic damages caused by increased GHG emissions in future 

years. But neither the rate itself nor the information necessary to derive its implied value 

is commonly reported. In light of the limited amount of debate thus far about the 

appropriate growth rate of the SCC, applying a rate of 3 percent per year seems 

appropriate at this stage. This value is consistent with the range recommended by IPCC 

(2007) and close to the latest published estimate (Hope, 2008). 

For climate change, one of the most complex issues involves the appropriate discount 

rate. OMB’s current guidance offers a detailed discussion of the relevant issues and calls for 

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discount rates of 3 percent and 7 percent. It also permits a sensitivity analysis with low rates for 

intergenerational problems. (“If your rule will have important intergenerational benefits or costs 

you might consider a further sensitivity analysis using a lower but positive discount rate in 

addition to calculating net benefits using discount rates of 3 and 7 percent.”) The SCC is being 

developed within the general context of the current guidance. 

The choice of a discount rate, especially over long periods of time, raises highly 

contested and exceedingly difficult questions of science, economics, philosophy, and law. See, 

e.g., William Nordhaus, “The Challenge of Global Warming (2008); Nicholas Stern, The 

Economics of Climate Change” (2007); “Discounting and Intergenerational Equity” (Paul 

Portney and John Weyant, eds., 1999). Under imaginable assumptions, decisions based on costbenefit analysis with high discount rates might harm future generations—at least if investments 

are not made for the benefit of those generations. See Robert Lind, “Analysis for 

Intergenerational Discounting,” id. at 173, 176-177. At the same time, use of low discount rates 

for particular projects might itself harm future generations, by ensuring that resources are not 

used in a way that would greatly benefit them. In the context of climate change, questions of 

intergenerational equity are especially important. 

Reasonable arguments support the use of a 3 percent discount rate. First, that rate is 

among the two figures suggested by OMB guidance, and hence it fits with existing National 

policy. Second, it is standard to base the discount rate on the compensation that people receive 

for delaying consumption, and the 3 percent rate is close to the risk-free rate of return, proxied 

by the return on long term inflation-adjusted U.S. Treasury Bonds. (In the context of climate 

change, it is possible to object to this standard method for deriving the discount rate.) Although 

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these rates are currently closer to 2.5 percent, the use of 3 percent provides an adjustment for the 

liquidity premium that is reflected in these bonds’ returns. 

At the same time, other arguments support use of a 5 percent discount rate. First, that rate 

can also be justified by reference to the level of compensation for delaying consumption, because 

it fits with market behavior with respect to individuals’ willingness to trade off consumption 

across periods as measured by the estimated post-tax average real returns to private investment 

(e.g., the S&P 500). In the climate setting, the 5 percent discount rate may be preferable to the 

riskless rate because it is based on risky investments and the return to projects to mitigate climate 

change is also risky. In contrast, the 3 percent riskless rate may be a more appropriate discount 

rate for projects where the return is known with a high degree of confidence (e.g., highway 

guardrails). 

Second, 5 percent, and not 3 percent, is roughly consistent with estimates implied by 

reasonable inputs to the theoretically derived Ramsey equation, which specifies the optimal time 

path for consumption. That equation specifies the optimal discount rate as the sum of two 

components. The first reflects the fact that consumption in the future is likely to be higher than 

consumption today (even accounting for climate impacts), so diminishing marginal utility 

implies that the same monetary damage will cause a smaller reduction of utility in the future. 

Standard estimates of this term from the economics literature are in the range of 3 to 5 percent. 

The second component reflects the possibility that a lower weight should be placed on utility in 

the future, to account for social impatience or extinction risk, which is specified by a pure rate of 

time preference (PRTP). A conventional estimate of the PRTP is 2 percent. (Some observers 

believe that a principle of intergenerational equity suggests that the PRTP should be close to 

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zero.) It follows that discount rate of 5 percent is within the range of values which are able to be 

derived from the Ramsey equation, albeit at the low end of the range of estimates usually 

associated with Ramsey discounting. 

It is recognized that the arguments above—for use of market behavior and the Ramsey 

equation—face objections in the context of climate change, and of course there are alternative 

approaches. In light of climate change, it is possible that consumption in the future will not be 

higher than consumption today, and if so, the Ramsey equation will suggest a lower figure. Some 

people have suggested that a very low discount rate, below 3 percent, is justified in light of the 

ethical considerations calling for a principle of intergenerational neutrality. See Nicholas Stern, 

“The Economics of Climate Change” (2007); for contrary views, see William Nordhaus, A 

Question of Balance (2008); Martin Weitzman, “Review of the Stern Review on the Economics 

of Climate Change." Journal of Economic Literature, 45(3): 703–724 (2007). Additionally, some 

analyses attempt to deal with uncertainty with respect to interest rates over time; a possible 

approach enabling the consideration of such uncertainties is discussed below. Richard Newell 

and William Pizer, “Discounting the Distant Future: How Much Do Uncertain Rates Increase 

Valuations?” J. Environ. Econ. Manage. 46 (2003) 52-71. 

The application of the methodology outlined above yields estimates of the SCC that are 

reported in Table IV.31. These estimates are reported separately using 3 percent and 5 percent 

discount rates. The cells are empty in rows 10 and 11 because these studies did not report 

estimates of the SCC at a 3 percent discount rate. The model-weighted means are reported in the 

final or summary row; they are $33 per tCO2 at a 3% discount rate and $5 per tCO2 with a 5% 

discount rate. 

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Table IV.31 Global Social Cost of Carbon Estimates ($/tCO2 in 2007 in 2007$), Based on 

3% and 5% Discount Rates* 

 Model Study Climate Scenario 3% 5% 

1 FUND Anthoff et al. 2009 FUND default 6 -1 

2 FUND Anthoff et al. 2009 SRES A1b 1 -1 

3 FUND Anthoff et al. 2009 SRES A2 9 -1 

4 FUND Link and Tol 2004 No THC 12 3 

5 FUND Link and Tol 2004 THC continues 12 2 

6 FUND Guo et al. 2006 Constant PRTP 5 -1 

7 FUND Guo et al. 2006 Gollier discount 1 14 0 

8 FUND Guo et al. 2006 Gollier discount 2 7 -1 

FUND Mean 8.25 0 

9 PAGE Wahba & Hope 2006 A2-scen 57 7 

10 PAGE Hope 2006 7 

11 DICE Nordhaus 2008 8 

Summary Model-weighted Mean 33 5 

*The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008), 

Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or 

DICE and use business-as-usual climate scenarios. All values are based on the best available information from the 

underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all estimates 

included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3 percent annual growth 

rate in the SCC, and adjusted for inflation using GDP deflator. 

DOE used the model-weighted mean values of $33 and $5 per ton (2007$), as these 

represent the estimates associated with the 3 percent and 5 percent discount rates, respectively. 

The 3 percent and 5 percent estimates have independent appeal and at this time a clear preference 

for one over the other is not warranted. These values were then escalated to 2008$ and rounded 

to $34 and $5. Thus, DOE has also included—and centered its current attention on—the average 

of the estimates associated with these discount rates, which is approximately $20 (in 2008$). 

(Based on the $20 global value, the domestic value would be approximately $1 per ton of CO2 

equivalent.) 

It is true that there is uncertainty about interest rates over long time horizons. 

Recognizing that point, Newell and Pizer have made a careful effort to adjust for that 

uncertainty. See Newell and Pizer, supra. This is a relatively recent contribution to the literature. 

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There are several concerns with using this approach in this context. First, it would be a 

departure from current OMB guidance. Second, an approach that would average what emerges 

from discount rates of 3 percent and 5 percent reflects uncertainty about the discount rate, but 

based on a different model of uncertainty. The Newell-Pizer approach models discount rate 

uncertainty as something that evolves over time; in contrast, one alternative approach would 

assume that there is a single discount rate with equal probability of 3 percent and 5 percent. 

Table IV.32 reports on the application of the Newell-Pizer adjustments. The precise 

numbers depend on the assumptions about the data generating process that governs interest rates. 

Columns (1a) and (1b) assume that “random walk” model best describes the data and uses 3 

percent and 5 percent discount rates, respectively. Columns (2a) and (2b) repeat this, except that 

it assumes a “mean-reverting” process. As Newell and Pizer report, there is stronger empirical 

support for the random walk model. 

Table IV.32 Global Social Cost of Carbon Estimates ($/tCO2 in 2007 in 2007$),* Using 

Newell & Pizer Adjustment for Future Discount Rate Uncertainty** 

Model Study Climate Scenario 

Random- walk 

model 

Mean-reverting 

model 

3% 5% 3% 5% 

(1a) (1b) (2a) (2b) 

1 FUND Anthoff et al. 2009 FUND default 10 0 7 -1 

2 FUND Anthoff et al. 2009 SRES A1b 2 0 1 -1 

3 FUND Anthoff et al. 2009 SRES A2 15 0 10 -1 

4 FUND Link and Tol 2004 No THC 20 6 13 4 

5 FUND Link and Tol 2004 THC continues 20 4 13 2 

6 FUND Guo et al. 2006 Constant PRTP 9 0 6 -1 

7 FUND Guo et al. 2006 Gollier discount 1 14 0 14 0 

8 FUND Guo et al. 2006 Gollier discount 2 7 -1 7 -1 

FUND Mean 12 1 9 0 

9 PAGE Wahba & Hope 2006 A2-scen 97 13 63 8 

10 PAGE Hope 2006 13 8 

11 DICE Nordhaus 2008 15 9 

Summary Model-weighted Mean 55 10 36 6 

*The sample includes all peer reviewed, non-equity-weighted estimates included in Tol (2008), Nordhaus (2008), 

Hope (2008), and Anthoff et al. (2009), that are based on the most recent published version of FUND, PAGE, or 

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EE-2006-STD-0129 COMMENT 56.1
DICE and use business-as-usual climate scenarios. All values are based on the best available information from the 

underlying studies about the base year and year dollars, rather than the Tol (2008) assumption that all estimates 

included in his review are 1995 values in 1995$. All values were updated to 2007 using a 3 percent annual growth 

rate in the SCC, and adjusted for inflation using GDP deflator. 

**Assumes a starting discount rate of 3 percent. Newell and Pizer (2003) based adjustment factors are not applied to 

estimates from Guo et al. (2006) that use a different approach to account for discount rate uncertainty (rows 7-8). 

The resulting estimates of the social cost of carbon are necessarily greater. When the 

adjustments from the random walk model are applied, the estimates of the social cost of carbon 

are $10 and $55 (2007$), with the 5 percent and 3 percent discount rates, respectively. The 

application of the mean-reverting adjustment yields estimates of $6 and $36 (2007$). Since the 

random walk model has greater support from the data, DOE also used the SCC values of $10 and 

$55 (2007$). When escalated to 2008$, these values were approximately $10 and $56. 

In summary, in considering the potential global benefits resulting from reduced CO2 

emissions, DOE used values based on a social cost of carbon of approximately $5, $10, $20, $34 

and $56 per metric ton avoided in 2007 (values expressed in 2008$). DOE also calculated the 

domestic benefits based on a value of approximately $1 per metric ton avoided in 2007. To 

monetize the CO2 emissions reductions expected to result from amended standards for heating 

products in 2013-2045, DOE escalated the above values for 2007 using a three-percent escalation 

rate. As indicated in the discussion above, estimates of SCC are assumed to increase over time 

since future emissions are expected to produce larger incremental damages as physical and 

economic systems become more stressed as the magnitude of climate change increases. Although 

most studies that estimate economic damages caused by increased GHG emissions in future 

years produce an implied growth rate in the SCC, neither the rate itself nor the information 

necessary to derive its implied value is commonly reported. However, applying a rate of 3 

percent per year is consistent with the range recommended by IPCC (2007). 

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EE-2006-STD-0129 COMMENT 56.1
DOE recognizes that scientific and economic knowledge about the contribution of CO2 

and other GHG to changes in the future global climate and the potential resulting damages to the 

world economy continues to evolve rapidly. Thus, any value placed in this rulemaking on CO2 

emissions reduction is subject to change. DOE, together with other Federal agencies, will 

continue to review various methodologies for estimating the monetary value of reductions in 

CO2 and other greenhouse gas emissions. This ongoing review will consider the comments on 

this subject that are part of the public record for this and other rulemakings, as well as other 

methodological assumptions and issues. However, consistent with DOE’s legal obligations, and 

taking into account the uncertainty involved with this particular issue, DOE has included in this 

proposed rule the most recent values and analyses resulting from the ongoing interagency review 

process. 

3.Valuation of Other Emissions Reductions 

DOE also investigated the potential monetary benefit of reduced NOx and Hg emissions 

from the TSLs it considered. As previously stated, DOE’s analysis assumed the presence of 

nationwide emission caps on SO2 and caps on NOx emissions in the 28 States covered by the 

CAIR. In the presence of these caps, the NEMS-BT modeling system that DOE used to forecast 

emissions reduction indicated that no physical reductions in power sector emissions would occur 

for SO2, but that the standards could put slight downward pressure on the prices of emissions 

allowances in cap-and-trade markets. Estimating this effect is very difficult because such factors 

as credit banking can change the trajectory of prices. From its modeling to date, DOE is unable 

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EE-2006-STD-0129 COMMENT 56.1
 

to estimate a benefit from SO2 emissions reductions at this time. See the environmental 

assessment in the NOPR TSD for further details. 

As noted above, new or amended energy conservation standards would reduce NOX 

emissions in those 22 States that are not affected by the CAIR, in addition to the reduction in site 

NOX emissions nationwide. DOE estimated the monetized value of NOX emissions reductions 

resulting from each of the TSLs considered for today’s NOPR based on environmental damage 

estimates from the literature. Available estimates suggest a very wide range of monetary values, 

ranging from $370 per ton to $3,800 per ton of NOX from stationary sources, measured in 2001$ 

(equivalent to a range of $442 to $4,540 per ton in 2008$). Refer to the OMB, Office of 

Information and Regulatory Affairs, “2006 Report to Congress on the Costs and Benefits of 

Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities,” Washington, 

DC, for additional information. 

For Hg emissions reductions, DOE estimated the monetized values resulting from the 

TSLs considered for today’s NOPR based on environmental damage estimates from the 

literature. The impact of mercury emissions from power plants on humans is considered highly 

uncertain. However, DOE identified two estimates of the environmental damage of mercury 

based on estimates of the adverse impact of childhood exposure to methyl mercury on 

intelligence quotient (IQ) for American children, and subsequent loss of lifetime economic 

productivity resulting from these IQ losses. The high-end estimate is based on an estimate of the 

current aggregate cost of the loss of IQ in American children that results from exposure to 

mercury of U.S. power plant origin ($1.3 billion per year in 2000$), which works out to $33.3 

million per ton emitted per year (2008$). Refer to L. Trasande et al., “Applying Cost Analyses to 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Drive Policy that Protects Children,” 1076 Ann. N.Y. Acad. Sci. 911 (2006) for additional 

information. DOE’s low-end estimate is $0.66 million per ton emitted (in 2004$) or $0.745 

million per ton in 2008$. DOE derived this estimate from an evaluation of mercury control that 

used different methods and assumptions from the first study but was also based on the present 

value of the lifetime earnings of children exposed. See Ted Gayer and Robert Hahn, “Designing 

Environmental Policy: Lessons from the Regulation of Mercury Emissions,” Regulatory 

Analysis 05–01, AEI-Brookings Joint Center for Regulatory Studies, Washington, DC (2004). A 

version of this paper was published in the Journal of Regulatory Economics in 2006. 

EEI stated that the costs of remediating emissions of CO2, SO2, NOX, and Hg are 

included in the rates customers pay, so monetizing their values would be double counting. (EEI, 

No. 40 at p. 6) DOE understands the comment as referring to actions power plant operators take 

to meet environmental regulations, the costs of which are reflected in electricity rates. With 

regulations currently in place, revised standards for heating products would result in a reduction 

in CO2, NOX, and Hg emissions by avoiding electricity generation. Because these emissions 

impose societal costs, their reduction has an economic value that can be estimated. 

Earthjustice stated that DOE must calculate and monetize the value of the reductions in 

emissions of particulate matter (PM) that will result from standards; even if DOE cannot 

consider secondary PM emissions, it must consider primary emissions. (Earthjustice, No. 47 at p. 

5) DOE agrees that PM impacts are of concern due to human exposures that can impact health. 

But impacts of PM emissions reduction are much more difficult to estimate than other emissions 

reductions due to the complex interactions between PM, other power plant emissions, 

meteorology and atmospheric chemistry that impact human exposure to particulates. Human 

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EE-2006-STD-0129 COMMENT 56.1
 

exposure to PM usually occurs at a significant distance from the power plants that are emitting 

particulates and particulate precursors. When power plant emissions travel this distance they 

undergo highly complex atmospheric chemical reactions. While the Environmental Protection 

Agency (EPA) does keep inventories of direct PM emissions of power plants, in its source 

attribution reviews the EPA does not separate direct PM emissions from power plants from the 

particulates indirectly produced through complex atmospheric chemical reactions. This is in part 

because SO2 emissions react with direct PM emissions particles to produce combined sulfate 

particulates. Thus it is not useful to examine how the standard impacts direct PM emissions 

independent of indirect PM production and atmospheric dynamics. DOE is not currently able to 

run a model that can make these estimates reliably at the national level. 

Earthjustice stated that DOE must consider coming climate change legislation and a 

national cap on carbon emissions and must account for the effect of the standards in reducing 

allowance prices. (Earthjustice, No. 47 at p. 4) Because no climate change legislation has been 

enacted to date, the timing and shape of any national cap on carbon emissions is uncertain at this 

point. Therefore, DOE did not account for such a cap in its NOPR analysis. 

V. Analytical Results 

A. Trial Standard Levels 

DOE analyzed the benefits and burdens of a number of TSLs for each of the three types 

of heating products separately. For a given product consisting of several product classes, DOE 

developed some of the TSLs so that each TSL is comprised of energy efficiency levels from each 

product class that exhibit similar characteristics. For example, in the case of water heaters, one of 

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the TSLs consists of the max-tech efficiency levels from each product class being considered for 

this rulemaking. DOE attempted to limit the number of TSLs considered for the NOPR by 

eliminating efficiency levels that do not exhibit significantly different economic and/or 

engineering characteristics from the efficiency levels already selected as a TSL. A description of 

each TSL DOE analyzed for each of the three types of heating products is provided below. While 

DOE only presents the results for those efficiency levels in TSL combinations in today’s NOPR, 

DOE presents the results for all efficiency levels analyzed in the NOPR TSD. DOE requests 

comments on the results for all of the efficiency levels since DOE could consider any 

combination of efficiency levels for the final rule as a result of comments from interested parties. 

1. Water Heaters

 Table V.1 shows the seven TSLs DOE analyzed for water heaters. Since amended water 

heater standards would apply to the full range of storage volumes, DOE is presenting the TSLs 

for water heaters in terms of the energy efficiency equations, rather than only showing the 

required efficiency level at the representative capacities. As discussed in section IV.C.7. DOE is 

using the alternative energy-efficiency equations developed in the engineering analysis for the 

NOPR. DOE is grouping the energy efficiency equations for each of the four water heater 

product classes to show the benefits and burdens of amended energy conservation standards. 

For TSL 1, 2, 3, and 4, DOE is using the rated storage volume divisions and the energy 

efficiency equations as shown in section IV.C.7, which specify a two-slope approach. TSL 1 

consists of the efficiency levels for each product class that are approximately equal to the current 

shipment-weighted average efficiency. TSL 2 and TSL 3 consist of efficiency levels with slightly 

higher efficiencies compared to TSL 1 for most of the product classes. TSL 4 represents the 

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EE-2006-STD-0129 COMMENT 56.1
 

maximum electric resistance water heater efficiency across the entire range of storage volumes 

that DOE analyzed for electric storage water heaters, and the maximum atmospherically-vented 

efficiency across the entire range of storage volumes that DOE analyzed for gas-fired storage 

water heaters. 

For TSL 5, DOE further modified the two-slope approach developed in the engineering 

analysis. For this TSL, DOE considers a pairing of efficiency levels that would promote the 

penetration of advanced technologies into the electric and gas-fired storage water heater markets 

and potentially save additional energy by using a two-slope approach with different requirements 

for each subsection. Consequently, DOE pairs an efficiency level requiring heat pump 

technology for large-volume electric storage water heaters with an efficiency level achievable 

using electric resistance technology for small-volume electric storage water heaters. In addition, 

DOE pairs an efficiency level requiring condensing technology for large-volume gas storage 

water heaters with an efficiency level that can be achieved in atmospherically-vented gas-fired 

storage water heaters with increased insulation thickness for small storage volumes. 

In addition to pairing different technologies for small and large volume products for TSL 

5, DOE also modified the division point between small-volume and large-volume gas-fired and 

electric storage water heaters. DOE used an analysis of market data to determine the initial 

division points (see section IV.C.7 for details), which were 60 gallons for gas-fired storage water 

heaters and 80 gallons for electric storage water heaters. These division points are used to modify 

the two-slope equations for TSLs 1, 2, 3, and 4 (as well as TSLs 6 and 7, described below). 

Because DOE pairs two different technologies for consideration as an amended standard in TSL 

5, DOE is concerned that manufacturers may attempt to circumvent the increased standards for 

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large-volume water heaters by producing water heaters at volumes just below the division points. 

As a result, DOE has chosen to modify the division points for TSL 5 to 55 gallons for gas-fired 

and electric storage water heaters to attempt to mitigate the potential loophole. TSL 5 includes 

efficiency levels that effectively require heat pump technology for electric storage water heater 

with rated storage volumes above 55 gallons, and efficiency levels that effectively require 

condensing technology for gas-fired storage water heaters with rated storage volumes above 55 

gallons. Using DOE’s shipments model and market assessment, DOE estimated approximately 4 

percent of gas-fired storage water heater shipments and 11 percent of models would be subject to 

the large-volume water heater requirements using the TSL 5 division. Similarly, DOE estimated 

approximately 9 percent of electric storage water heater shipments and 27 percent of models 

would be subject to the large volume water heater requirements using the TSL 5 division. 

DOE specifically seeks comment on the different approach taken in TSL 5, including the 

rated storage volume division of 55 gallons between small and large storage volumes for gasfired and electric storage water heaters at TSL 5. In particular, DOE is interested in comments 

from interested parties regarding whether DOE should consider an alternative division in the 

final rule, including (but not limited to), 66 gallons or 75 gallons. In addition, DOE seeks 

comments regarding whether different divisions should be specified for gas-fired and electric 

storage water heaters such that a similar percentage of the market is impacted in terms of 

shipments and/or models. 

TSL 6 uses the same divisions as TSL 1, 2, 3, and 4 for gas-fired water heaters. TSL 6 is 

identical to TSL 4 except DOE is considering a heat pump water heater level for electric storage 

water heaters across the entire range of storage volumes, which is compatible with ENERGY 

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STAR criteria for electric storage water heaters at the representative rated storage volume. DOE 

did use a division point for the max-tech energy efficiency equations as described in the 

engineering analysis. TSL 7 consists of the max-tech efficiency levels for each of the water 

heater product classes at the time the analysis was developed. TSL 6 and 7 both require 

efficiency levels that can be met using heat pump technology for electric storage water heaters. 

TSL 7, however, requires a higher efficiency level than TSL 6, which corresponds to the maxtech efficiency level for the representative rated storage capacity (i.e., 2.2 EF at 50 gallons). TSL 

7 also requires efficiency levels that can be met using condensing technology for gas-fired 

storage and instantaneous water heaters. 

Table V.1 demonstrates the energy-efficiency equations and associated two slope 

divisions for TSLs 1 through 7. 

Table V.1 Trial Standard Levels for Residential Water Heaters (Energy Factor) 

Trial Standard Level Energy Efficiency Equation 

TSL 1 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0015 x Rated 

Storage Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.699 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.967 – (0.00095 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.013 – (0.00153 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.64 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 2 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated 

Storage Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.966 – (0.0008 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.026 – (0.00155 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.66 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

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EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 3 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.965 – (0.0006 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 80 gallons: 

EF = 1.051 – (0.00168 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.66 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 4 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.960 – (0.0003 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 1.088 – (0.0019 x Rated Storage 

Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 5 For GSWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 0.831 – (0.00078 x Rated 

Storage Volume in gallons) 

For ESWHs with a Rated Storage 

Volume at or below 55 gallons: 

EF = 0.960 – (0.0003 x Rated Storage 

Volume in gallons) 

For ESWHs with a Rated Storage 

Volume above 55 gallons: 

EF = 2.057 – (0.00113 x Rated 

Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 6 For GSWHs with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated Storage 

Volume in gallons) 

For GSWHs with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated Storage 

Volume in gallons) 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82 – (0.0019 x Rated Storage Volume in gallons) 

TSL 7 For GSWHs (over the Entire Rated Storage Volume range): 

EF = 0.831 – (0.00078 x Rated Storage Volume in gallons) 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.057 – (0.00113 x Rated Storage Volume in gallons) 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.74 – (0.0019 x Rated Storage Volume in gallons) 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.95 – (0.0019 x Rated Storage Volume in gallons) 

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2. Direct Heating Equipment 

 Table V.2 demonstrates the six TSLs DOE analyzed for DHE. TSL 1 consists of the 

efficiency levels that are close to the current shipment-weighted average efficiency. TSL 2, TSL 

3 and TSL 4 consist of efficiency levels that have gradually higher efficiency than TSL 1. TSL 5 

consists of the efficiency levels that include electronic ignition and fan assist (where applicable), 

and TSL 6 consists of the max-tech efficiency levels. 

Table V.2 Trial Standard Levels for Direct Heating Equipment (AFUE) 

Product Class TSL 

1 

TSL 

2 

TSL 

3 

TSL 

4 

TSL 

5 

TSL 

6 

Gas Wall Fan (over 42,000 Btu/h) 75% 76% 77% 80% 75% 80% 

Gas Wall Gravity (over 27,000 and up to 46,000 

Btu/h) 66% 68% 71% 71% 72% 72% 

Gas Floor (over 37,000 Btu/h) 58% 58% 58% 58% 58% 58% 

Gas Room (over 27,000 and up to 46,000 Btu/h) 66% 67% 68% 68% 83% 83% 

Gas Hearth (over 27,000 and up to 46,000 Btu/h) 67% 67% 67% 72% 72% 93% 

3. Gas-Fired Pool Heaters 

Table V.3 shows the six TSLs DOE analyzed for pool heaters. TSL 1 consists of the 

efficiency level that is close to the current shipment-weighted average efficiency. TSL2 and TSL 

3 consist of the efficiency levels that have gradually higher efficiency than TSL 1. TSL 4 is the 

highest efficiency level with positive NPV. TSL 5 is the highest analyzed non-condensing 

efficiency level, and TSL 6 consists of the max-tech efficiency level. 

Table V.3 Trial Standard Levels for Pool Heaters (Thermal Efficiency) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas 81% 82% 83% 84% 86% 95% 

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EE-2006-STD-0129 COMMENT 56.1
B. Economic Justification and Energy Savings 

1. Economic Impacts on Consumers 

a. Life-Cycle Cost and Payback Period 

Consumers affected by new or amended standards usually experience higher purchase 

prices and lower operating costs. Generally, these impacts are best captured by changes in lifecycle costs and payback period. Therefore, DOE calculated the LCC and PBP for the potential 

standard levels considered in this rulemaking. DOE’s LCC and PBP analyses provided key 

outputs for each TSL, which are reported by product in Table V.4 through Table V.13, below. In 

each table, the first two outputs are the average total LCC and the average LCC savings. The 

next three outputs show the percentage of households where the purchase of a product complying 

with each TSL would create a net life-cycle cost, no impact, or a net life-cycle savings for the 

purchaser. The last outputs are the median PBP and the average PBP for the consumer 

purchasing a design that complies with the TSL. The results for each TSL are relative to the 

efficiency distribution in the base case (no amended standards). 

DOE based its LCC and PBP analyses for heating products on energy consumption under 

conditions of actual use, whereas it based the rebuttable presumption PBP test on consumption 

under conditions prescribed by the DOE test procedure, as required by EPCA. (42 U.S.C. 

6295(o)(2)(B)(iii)) 

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Table V.4 Gas-Fired Storage Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.62 3,369 69 9 22 69 1.4 4.6 

2, 3, 4 0.63 3,369 68 15 17 68 2.7 11.6 

5 0.63* 3,355 78 16 16 68 3.0 12.1 

6 0.67 3,618 -150 67 6 27 20.9 24.6 

7 0.80 3,522 -55 62 1 36 14.1 14.2 

* For TSL 5, the EF and the results represent shipments-weighted averages of the EFs and results that apply to 

small- and large-volume water heaters, respectively. For the other TSLs the EF and the results refer to the 

representative rated volume (40 gal). 

Table V.5 Electric Storage Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.92 3,372 16 10 32 59 2.8 7.8 

2 0.93 3,361 23 11 29 60 3.0 8.0 

3 0.94 3,351 32 20 14 66 4.5 8.6 

4 0.95 3,342 39 25 10 65 5.8 8.8 

5 1.04* 3,306 96 25 10 65 5.9 9.1 

6 2.00 3,145 224 45 5 50 8.3 25.9 

7 2.20 3,095 273 45 1 54 8.2 21.5 

* For TSL 5, the EF and the results represent shipments-weighted averages of the EFs and results that apply to 

small- and large-volume water heaters, respectively. For the other TSLs the EF and the results refer to the 

representative rated volume (50 gal). 

291 

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Table V.6 Oil-Fired Storage Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 0.58 8,616 171 0 69 31 0.7 0.8 

2 0.60 8,377 288 0 52 48 0.4 0.3 

3, 4, 5, 6 0.62 8,190 395 0 45 55 0.5 0.7 

7 0.68 7,863 655 0 7 93 1.4 1.7 

Table V.7 Gas-Fired Instantaneous Water Heaters: LCC and PBP Results 

TSL 

Energy 

Factor 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2, 3, 4, 5 0.82 5,409 0 11 85 4 23.5 30.4 

6 0.92 5,665 -181 70 15 15 34.1 50.2 

7 0.95 5,798 -307 83 6 12 39.5 58.7 

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Table V.8 Gas Wall Fan DHE: LCC and PBP Results 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 5 75 6,879 73 3 59 38 3.1 3.1 

2 76 6,842 90 5 55 41 3.9 6.7 

3 77 6,825 104 30 14 56 6.0 15.0 

4, 6 80 6,793 135 44 5 52 9.8 22.6 

Table V.9 Gas Wall Gravity DHE: LCC and PBP Results 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 66 6,533 25 12 70 18 8.1 14.8 

2 68 6,458 83 19 40 41 6.5 10.9 

3, 4 71 6,349 192 39 0 61 8.3 14.1 

5, 6 72 6,473 68 59 0 41 13.0 26.5 

Table V.10 Gas Floor DHE: LCC and PBP Results 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2, 3, 4, 

5, 6 58 7,404 13 25 57 18 14.7 20.4 

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Table V.11 Gas Room DHE: LCC and PBP Results 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 66 7,702 42 19 50 31 8.1 13.4 

2 67 7,630 96 19 25 56 4.9 9.4 

3, 4 68 7,567 143 20 25 55 5.3 10.2 

5, 6 83 6,892 646 26 25 49 7.0 15.2 

Table V.12 Gas Hearth DHE: LCC and PBP Results 

TSL 

AFUE 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1, 2, 3 67 5,195 96 9 51 40 0.0 7.9 

4, 5 72 5,388 -70 69 13 17 25.9 77.6 

6 93 5,571 -253 81 0 19 37.5 78.2 

Table V.13 Gas-Fired Pool Heaters: LCC and PBP Results 

TSL 

Thermal 

Efficiency 

% 

LCC Payback Period 

Average LCC 

2008$ 

Average 

LCC Savings 

2008$ 

Households with 

Median 

years 

Average 

years 

Net 

Cost| 

% 

No 

Impact 

% 

Net 

Benefit 

% 

1 81 6,383 24 6 64 30 2.5 3.5 

2 82 6,395 18 31 46 22 7.4 10.1 

3 83 6,395 39 52 24 24 10.6 18.7 

4 84 6,461 -13 59* 22 20 13.0 19.5 

5 86 7,034 -555 90 6 5 28.6 42.4 

6 95 7,809 -1,323 96 1 3 28.1 37.2 

* For TSL 4, DOE determined that 14 percent of the consumers will experience a net cost smaller than 2 percent of 

their total LCC (see chapter 8 of the TSD). 

294 

EE-2006-STD-0129 COMMENT 56.1
 

b. Analysis of Consumer Subgroups 

For gas-fired and electric storage water heaters, and gas wall fan and gas wall gravity DHE, 

DOE estimated consumer subgroup impacts for low-income households and senior-only 

households. In addition, for gas-fired and electric storage water heaters, DOE estimated consumer 

subgroup impacts for households in multi-family housing and households in manufactured 

homes as well. (As a reminder and as explained in section IV.6, not all products in this 

rulemaking were included in DOE’s consumer subgroup analysis.) 

For gas-fired storage water heaters, the impacts of the proposed standard (0.63 EF) are 

roughly the same for the senior-only sample and the low-income sample as they are for the full 

household sample for this product class. For the multi-family sample and the manufactured home 

sample, the average LCC savings are somewhat lower than they are for the full household 

sample, and the fraction of households experiencing a cost (negative savings) is higher. In both 

cases, however, the average LCC savings is positive, and more than half of the households in the 

identified subgroups would experience an LCC benefit. 

For electric storage water heaters, the impacts of the proposed TSL 4 standard (0.95 EF) 

are roughly the same for the senior-only sample as they are for the full household sample for this 

product class. The impacts are slightly more negative for the low-income sample, and they are 

moderately more negative for the multi-family sample and the manufactured home sample. The 

average LCC savings are -$2 for the latter two subgroups, but in both cases, more than half of the 

households in the identified subgroups would experience an LCC benefit. 

295
 

EE-2006-STD-0129 COMMENT 56.1
In the case of a standard for electric storage water heaters at TSL 5, which would require 

2.0 EF only for large-volume water heaters, the negative subgroup impacts seen in the case of 

TSL 6 are substantially less because only a small fraction of the households in the subgroups has 

large-volume water heaters for which the standard would effectively require a heat pump water 

heater. 

In the case of a standard for electric storage water heaters at TSL 6, the average LCC 

savings are lower for all of the subgroups than for the full household sample for this product 

class. The multi-family subgroup would experience an average negative LCC savings of $359 

(i.e., the average LCC would increase), and three-fourths of the households in the subgroup 

would experience a net cost. For the other subgroups, the fraction of households that would 

experience a net cost is close to or just above 50 percent, which is slightly higher than for the full 

household sample. The impact on the multi-family subgroup is primarily due to the lower hot 

water use among these households. 

For gas wall fan and gas wall gravity DHE, DOE estimated that the impacts of the proposed 

standards are roughly the same for the senior-only sample and the low-income sample as they are 

for the full household sample for these product classes. 

Chapter 11 of the NOPR TSD presents the detailed results of the consumer subgroup 

analysis. 

296
 

EE-2006-STD-0129 COMMENT 56.1
 

Table V.14 Comparison of Subgroup Impacts for Electric Storage Water Heaters 

Subgroup Average LCC Savings 

(2008$) 

Households with Net 

Cost 

(%) 

Median Payback 

Period 

(years) 

0.95 EF 

Senior-only 38 24 5.3 

Low-income 17 29 6.3 

Multi-family -2 35 6.8 

Mobile Home -2 34 7.0 

All Households 39 25 5.8 

2.0 EF 

Senior-only 30 52 9.8 

Low-income 143 49 9.3 

Multi-family -359 76 23.8 

Mobile Home 81 51 9.6 

All Households 224 45 8.3 

c. Rebuttable Presumption Payback 

As discussed above, EPCA provides a rebuttable presumption that an energy 

conservation standard is economically justified if the increased purchase cost for a product that 

meets the standard is less than three times the value of the first-year energy savings resulting 

from the standard (42 U.S.C. 6295(o)(2)(B)(iii)) DOE’s LCC and PBP analyses generate values 

that calculate the payback period for consumers of potential energy conservation standards, 

which includes, but is not limited to, the three-year payback period contemplated under the 

rebuttable presumption test discussed above. However, DOE routinely conducts a full economic 

analysis that considers the full range of impacts, including those to the consumer, manufacturer, 

Nation, and environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). 

In the present case, DOE calculated a rebuttable presumption payback period for each 

TSL. Rather than using distributions for input values, DOE used discrete values and, as required 

by EPCA, based the calculation on the assumptions in the DOE test procedures for the three 

types of heating products. As a result, DOE calculated a single rebuttable presumption payback 

297
 

EE-2006-STD-0129 COMMENT 56.1
value, and not a distribution of payback periods, for each standard level. Table V.15 through 

Table V.17 show the rebuttable presumption payback periods that are less than 3 years. For gasfired and electric storage water heaters and gas wall gravity DHE and gas room DHE, there were 

no payback periods under 3 years. 

While DOE examined the rebuttable-presumption criterion, it considered whether the 

standard levels considered for today’s rule are economically justified through a more detailed 

analysis of the economic impacts of these levels pursuant to 42 U.S.C. 6295(o)(2)(B)(i). The 

results of this analysis serve as the basis for DOE to definitively evaluate the economic 

justification for a potential standard level (thereby supporting or rebutting the results of any 

preliminary determination of economic justification). 

Table V.15 Water Heaters: Rebuttable Payback Periods 

Product Class Energy Factor PBP 

(years) 

Oil-Fired Storage 0.54 1.0 

0.56 0.7 

0.58 0.9 

0.60 0.5 

0.62 0.7 

0.66 1.4 

0.68 1.3 

Gas-Fired Instantaneous 0.69 0.9 

Table V.16 Direct Heating Equipment: Rebuttable Payback Periods 

Product Class AFUE 

% 

PBP 

years 

Gas Wall Fan DHE 75 2.9 

76 2.9 

Gas Hearth DHE 67 2.0 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Table V.17 Pool Heaters: Rebuttable Payback Periods 

Thermal Efficiency 

% 

PBP 

years 

79 1.1 

81 1.9 

2. Economic Impacts on Manufacturers 

DOE performed an MIA to estimate the impact of amended energy conservation 

standards on manufacturers of residential water heaters, DHE, and pool heaters. Chapter 12 of 

the NOPR TSD explains this analysis in further detail. The tables below depict the financial 

impacts on manufacturers (represented by changes in INPV) and the conversion costs DOE 

estimates manufacturers would incur at each TSL. DOE shows the results by grouping product 

classes made by the same manufacturer and uses the scenarios that show the likely changes in 

industry value following amended energy conservation standards. In the following discussion, 

the INPV results refer the difference in industry value between the base case and the standards 

case that result from the sum of discounted cash flows from the base year (2010) through the end 

of the analysis period. The results also discuss the difference in cash flow between the base case 

and the standards case in the year before the compliance date of amended energy conservation 

standards. This figure gives a representation of how large the required conversion costs are 

relative to the cash flow generated by the industry in the absence of amended energy 

conservation standards. In the engineering analysis, DOE presents its findings of the common 

technology options that achieve the efficiencies for each of the representative product classes. To 

refer to the description of technology options and the required efficiencies at each TSL, see 

section IV.C of today’s notice. 

299
 

EE-2006-STD-0129 COMMENT 56.1
 

 

a. Water Heater Cash-Flow Analysis Results 

DOE modeled two different markup scenarios to estimate the potential impacts of 

amended energy conservation standards on residential water heater manufacturers. To assess the 

lower end of the range of potential impacts on water heater manufacturers, DOE modeled the 

preservation of return on invested capital scenario. Besides the impact of the main NIA shipment 

scenario and the required capital and product conversion costs on INPV, this case models that 

manufacturers would maintain the base-case return on invested capital in the standards case. This 

scenario represents the lower end of the range of potential impacts on manufacturers because 

manufacturers generate a historical rate of additional operating profit on the physical and 

financial investments required by energy conservation standards. 

To assess the higher end of the range of potential impacts on the residential water heater 

industry, DOE modeled the preservation of operating profit markup scenario in which higher 

energy conservation standards result in lower manufacturer markups. This scenario models 

manufacturers’ concerns about the higher costs of more efficient technology harming 

profitability. The scenario represents the upper end of the range of potential impacts on 

manufacturers only because no additional operating profit is earned on the investments required 

the meet the amended energy conservation standards. The results of these scenarios for the 

residential water heater industry are presented in Table V.18 through Table V.23. 

i. Cash-Flow Analysis Results for Gas-Fired and Electric Storage Water Heaters 

300
 

EE-2006-STD-0129 COMMENT 56.1
 

 

Table V.18. Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water 

Heaters – Preservation of Return on Invested Capital Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 842.7 838.9 837.7 837.8 839.2 821.8 840.7 905.7 

Change in 

INPV 

(2008$ 

millions) - (3.8) (5.1) (4.9) (3.5) (20.9) (2.0) 62.9 

(%) - -0.45% -0.60% -0.59% -0.41% -2.48% -0.24% 7.47% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 11.0 13.2 13.2 13.2 28.9 55.7 72.6 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 3.9 3.9 37.1 58.0 69.3 189.2 

Total 

Investment 

Required 

(2008$ 

millions) - 11.0 17.0 17.0 50.3 86.9 125.0 261.8 

Table V.19. Manufacturer Impact Analysis for Gas-Fired and Electric Storage Water 

Heaters – Preservation of Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 842.7 830.4 812.0 807.4 $763.9 712.8 $536.9 $305.1 

Change in 

INPV 

(2008$ 

millions) - (12.3) (30.7) (35.3) (78.8) (129.9) (305.8) (537.6) 

(%) - -1.46% -3.64% -4.19% -9.35% -15.41% -36.29% -63.79% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 11.0 13.2 13.2 13.2 28.9 55.7 72.6 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 3.9 3.9 37.1 58.0 69.3 189.2 

Total 

Investment 

Required 

(2008$ 

millions) - 11.0 17.0 17.0 50.3 86.9 125.0 261.8 

TSL 1 represents an improvement in efficiency from the baseline level of 0.59 EF to 0.62 

EF for gas-fired storage water heaters for the representative rated storage volume of 40 gallons. 

For electric storage water heaters TSL 1 represents an improvement in efficiency from the 

baseline level of 0.90 EF to 0.92 EF for the representative rated storage volume of 50 gallons. At 

TSL 1, DOE estimates the impacts on INPV to range from -$3.8 million to -$12.3 million, or a 

301
 

EE-2006-STD-0129 COMMENT 56.1
 

change in INPV of -0.45 percent to -1.46 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 4.8 percent, to $58.1 million, compared to the base-case 

value of $61.0 million in the year leading up to the standards. Currently, over 75 percent of the 

gas-fired storage water heaters are sold at the baseline level. However, all manufacturers also 

offer a full line of gas-fired storage water heaters that meet the gas-fired efficiencies at TSL 1. 

Although the majority of the electric storage water heater shipments do not meet TSL 1, every 

manufacturer also offers a full line of electric storage water heaters at or above this level. 

Because manufacturers have existing products and manufacturers could reach the required 

efficiencies with relatively minor changes to the foam insulation thickness at TSL 1, 

manufacturers of gas-fired and electric storage water heaters would have minimal conversion 

costs at TSL 1. Because the technology required at TSL 1 is similar to the baseline, the INPV 

impacts are similar for both markup scenarios. It is hence unlikely that TSL 1 would greatly 

reduce manufacturers’ profitability. 

TSL 2 represents an improvement in efficiency from the baseline level of 0.59 EF to 0.63 

EF for gas-fired storage water heaters for the representative rated storage volume of 40 gallons. 

For electric storage water heaters, TSL 2 represents an improvement in efficiency from the 

baseline level of 0.90 EF to 0.93 EF for the representative rated storage volume of 50 gallons. At 

TSL 2, DOE estimates the impacts on INPV to range from -$5.1 million to -$30.7 million, or a 

change in INPV of -0.60 percent to -3.64 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 8.7 percent, to $55.7 million, compared to the base-case 

value of $61.0 million in the year leading up to the standards. Currently, over 80 percent of the 

gas-fired storage water heaters sold do not meet TSL 2. At TSL 2, manufacturers are expected to 

meet the gas-fired efficiency requirements by adding additional insulation to their existing 

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EE-2006-STD-0129 COMMENT 56.1
 

 

products. The conversion costs at TSL 2 are relatively minor for gas-fired storage water heaters 

because most manufacturers have a full line of products at the required efficiency for TSL 2 and 

only minor changes in the manufacturing process would be required. Although the majority of 

the electric storage water heater market is below the efficiency specified for electric storage 

water heaters at TSL 2, more than 28 percent of the market is at or above this level. 

Manufacturers would have increasing conversion costs for both capital and product conversion 

for electric storage water heaters to modify production facilities to accommodate the extra 

insulation required at TSL 2. Because the technology required at TSL 2 is similar to the baseline 

for gas-fired and electric storage water heaters, however, it is unlikely that TSL 2 would greatly 

impact manufacturers’ profitability. 

Similar to TSL 2, TSL 3 represents an improvement in efficiency from the baseline level 

of 0.59 EF to 0.63 EF for gas-fired storage water heaters for the representative rated storage 

volume of 40 gallons. Because the efficiency requirements for gas-fired storage water heaters are 

the same at TSL 3 as at TSL 2, the impacts on manufacturers are the same as at TSL 2 for the 

gas-fired storage efficiency requirements. There are small impacts on manufacturers to improve 

the efficiency of the majority of the gas-fired storage shipments from the baseline. However, 

because these changes are expected to be relatively minor increases to the insulation thickness, 

the impacts on the industry are not substantial because these changes do not greatly alter the 

current manufacturing process. TSL 3 represents a further improvement in efficiency for electric 

storage water heaters from the baseline level of 0.90 EF to 0.94 EF for the representative rated 

storage volume of 50 gallons. To achieve the efficiency levels for TSL 3, electric storage 

manufacturers would be expected to further increase tank insulation thickness, with still 

relatively small conversion costs because many manufacturers already manufacture storage water 

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EE-2006-STD-0129 COMMENT 56.1
 

heaters at TSL 3. DOE estimates the INPV impacts to range from -$4.9 million to -$35.3 million, 

or a change in INPV of -0.59 percent to -4.19 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 8.7 percent to $55.7 million, compared to the base-case 

value of $61.0 million in the year leading up to the standards. 

Similar to TSL 2 and TSL 3, TSL 4 represents an improvement in efficiency from the 

baseline level of 0.59 EF to 0.63 EF for gas-fired storage water heaters for the representative 

rated storage volume of 40 gallons. Because the efficiency requirements for gas-fired storage 

water heaters are the same at TSL 4 as at TSL 2 and TSL 3, the impacts on gas-fired 

manufacturers are the same. There are small impacts on manufacturers to improve the efficiency 

of the majority of the gas-fired storage shipments from the baseline. However, because these 

changes are expected to be relatively minor increases to the insulation thickness, the impacts on 

the industry are not substantial because these changes do not greatly alter the current 

manufacturing process. TSL 4 represents a further improvement in efficiency from the baseline 

level of 0.90 EF to 0.95 EF for electric storage water heaters at the representative rated storage 

volume of 50 gallons. Based on a review of units on the market at these efficiency levels, DOE 

expects that manufacturers would likely further increase insulation levels. Because not all 

manufacturers have models at this efficiency currently available on the market, however, DOE 

expects that electric storage water heater manufacturers would incur higher conversion costs at 

TSL 4 than at TSL 3. At TSL 4, DOE estimates the INPV impacts to range from -$3.5 million to 

-$78.8 million, or a change in INPV of -0.41 percent to -9.35 percent. At this level, the industry 

cash flow is estimated to decrease by approximately 33.2 percent to $40.8 million, compared to 

the base-case value of $61.0 million in the year leading up to the standards. Only a small number 

of electric storage water heaters on the market meet the efficiency level for electric storage water 

304
 

EE-2006-STD-0129 COMMENT 56.1
 

heaters required by TSL 4. Electric storage manufacturers would have increasing conversion 

costs for both capital and product conversion to greatly increase the production of low volume 

products. The capital conversion costs for electric storage water heaters are more substantial than 

for gas-fired storage water heaters because each production line would require additional 

foaming stations to accommodate the greatly increased insulation thicknesses and, due to slower 

production speeds, adding additional production lines in existing facilities to maintain current 

shipment volumes. Manufacturers also noted that they were concerned about TSL 4 for electric 

storage water heaters because of problems with the test procedure that could make it difficult 

replicate the efficiencies required at this TSL. 

TSL 5 has the same efficiency requirements as TSL 4 for gas-fired and electric storage 

water heaters with rated storage volumes less than 55 gallons. Because the efficiency 

requirements for gas-fired and electric storage water heaters with rated storage volumes less than 

55 gallons are equal to TSL 4, at TSL 5 manufacturers share the same concerns for these rated 

storage volumes as at TSL 4. However, the efficiency requirements for gas-fired storage water 

heaters with rated storage volumes greater than 55 gallons effectively require condensing 

technology, and the efficiency requirements for electric storage water heaters with rated storage 

volumes greater than 55 gallons effectively require heat pump technology. At TSL 5, DOE 

estimates the INPV impacts to range from -$20.9 million to -$129.9 million, or a change in 

INPV of -2.48 percent to -15.41 percent. At this level, the industry cash flow is estimated to 

decrease by approximately 55.6 percent to $27.1 million, compared to the base-case value of 

$61.0 million in the year leading up to the standards. The higher, negative impacts on INPV are 

largely caused by the additional conversion costs required to substantially change the technology 

commonly used in large size gas-fired and electric storage water heaters today. DOE estimates 

305
 

EE-2006-STD-0129 COMMENT 56.1
the approximately 4 percent of gas-fired storage water heater shipments with rated volumes 

greater than 55 gallons would require an additional $13 million in conversion costs to use 

condensing technology. DOE estimates the approximately 9 percent of gas-fired storage water 

heater shipments with rated volumes greater than 55 gallons would require an additional $24 

million in conversion costs to use heat pump technology. 

Much of the additional capital conversion costs calculated for large volume sizes at TSL 

5 involve creating an additional gas-fired and electric assembly line in a facility adjacent to a 

current production facility. Because high-volume manufacturing facilities are typically arranged 

for units with similar assembly processes, the more complex technology used for larger rated 

volumes at TSL 5 could not be accommodated on existing production lines. The estimated 

product conversion costs at TSL 5 would involve retraining existing service and installation 

personnel, who have little experience installing and servicing storage water heaters that use these 

advanced technologies. To minimize unit damage and warranty claims and improve market 

acceptance, manufacturers would likely have to expend significant additional resources to hire 

training staff to provide more technical support. The other portion of the product conversion 

costs for large rated volumes are the product development effort to redesign existing products. 

Manufacturers could face constraints regarding the abilities of their engineering teams to develop 

multiple water heater families at TSL 5, as most engineering departments have limited 

experience with either technology. At a minimum, the efficiency requirements at TSL 5 would 

require manufacturers to convert existing commercial condensing gas products for residential 

use. However, multiple manufacturers would also have to develop completely new platforms in 

order to remain cost-competitive. Even if a manufacturer were to offer incur these high 

conversion costs, the high product development and capital conversion costs for a small segment 

306
 

EE-2006-STD-0129 COMMENT 56.1
 

of the overall market make it likely that consumers will have fewer product families to choose 

from after the compliance date of the final rule. 

Even if manufacturers offer gas condensing and electric heat pump water heaters for the 

large gallon sizes at TSL 5, there could be additional, negative impacts on consumers that could 

lead to a smaller market for these products. Consumers might no longer purchase water heaters 

with rated storage volumes above 55 gallons because of substantially higher increased first costs 

than most products currently on the market, the unfamiliar technologies, and size limitations. 

Because of these changes in the market, at TSL 5, manufacturers could decide that the demand 

for residential heat pump and condensing gas water heaters would drop to a point where the high 

product conversion and capital costs required for a small portion of total shipments are not 

justified. As a result, manufacturers would no longer manufacture residential storage water 

heaters at rated storage volumes above 55 gallons. In addition, consumers could be impacted if 

fewer contractors were willing to install these more complex products, especially if field 

technicians did not obtain any additional licenses and test equipment that could be required to 

service heat pump water heaters. These additional requirements would also likely increase 

installation and service costs beyond current levels since consumers would have fewer 

servicers/installers to choose from. 

Similar to TSL 2 through TSL 4, TSL 6 represents an improvement in efficiency from the 

baseline level of 0.59 EF to 0.63 EF for gas-fired storage water heaters for the representative 

rated storage volume of 40 gallons. Similarly, the impacts on manufacturers due to the gas-fired 

storage efficiencies are relatively minor because the required efficiencies for all volume sizes can 

likely be met with relatively minor changes to the insulation thickness. For electric storage water 

307
 

EE-2006-STD-0129 COMMENT 56.1
heaters, TSL 6 represents an improvement in efficiency from the baseline level of 0.90 EF to 2.0 

EF for electric storage water heaters at the representative rated storage volume of 50 gallons. At 

TSL 6, DOE estimates the impacts on INPV to range from -$2.0 million to -$305.8 million, or a 

change in INPV of -0.24 percent to -36.29 percent. At TSL 6, the industry cash flow is estimated 

to decrease by approximately 75.7 percent, to $14.8 million, compared to the base-case value of 

$61.0 million in the year leading up to the standards. To achieve efficiencies at or above TSL 6 

would require the use of heat pumps for electric storage water heaters for all rated volumes, a 

technology option that has yet to see wide adoption in the U.S. market. The higher expected 

purchased part content and market pressures would be expected to reduce manufacturer profits 

margins substantially. Although most electric storage water heater manufacturers indicated that 

they are in the process of developing heat pump water heaters, all manufacturers believe that an 

efficiency level that requires heat pump water heater technology is not appropriate as an 

amended energy conservation standard. Manufacturers stated that they would face substantial 

costs to switch their entire electric storage water heater production over to heat pump electric 

storage water heaters. Several manufacturers expect that they will have to buy the heat pump 

modules from outside vendors since most water heater manufacturers have no experience 

manufacturing heat pumps and have limited space in their facilities to produce heat pump 

systems. Multiple manufacturers stated that even if they were to simply buy and integrate heat 

pump modules, there would be substantial product development and capital conversion costs 

because present facilities are not adequate to handle the heat pump modules. DOE estimates that 

manufacturers would incur almost $70 million in capital conversion costs to modify production 

facilities to exclusively manufacture heat pump electric storage water heaters. These capital 

conversion cost estimates do not include the cost of building manufacturing capacity to produce 

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the heat pump modules because DOE believes manufacturers will likely purchase these as 

subassemblies. 

Furthermore, manufacturers stated that they would consider moving all or part of their 

existing production capacity abroad if the energy conservation standard is set at TSL 6 because 

many manufacturers expect that they would have to redesign their facilities completely to 

accommodate a minimum energy conservation standard at this TSL. According to these 

manufacturers, building a new facility entails less business disruption risk than attempting to 

completely redesign and upgrade existing facilities, and lower labor rates in Mexico and other 

countries abroad may entice manufacturers to move their production facilities outside of the U.S. 

In addition, manufacturers are very concerned about the significant number of customers who 

would face extremely costly installations for electric storage water heater replacements if a 

standard effectively requiring heat pump technology is mandated. According to manufacturers, a 

significant percentage of electric storage water heaters are installed in space-constrained 

environments which cannot accommodate the additional space required for the heat pump 

module. This is especially true for mobile homes and other consumer sub-groups that use smaller 

capacity tanks. 

Another concern of manufacturers at TSL 6 is the amount of additional training that 

would be necessary to upgrade the installation, distribution, and maintenance networks on the 

scale necessary to support an electric storage water heater market that used heat pump 

technology exclusively. Stated more simply, manufacturers are concerned that the typical 

installer or repair person would not have the requisite knowledge to troubleshoot or repair heat 

pump water heaters. Manufacturers also expressed concern about profitability if amendments to 

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the minimum energy conservation standard for electric storage water heaters were to require the 

use of heat pump technology. An amended energy conservation standard that effectively 

mandated heat pump technology would completely change the nature of their business. The 

production costs for an integrated heat pump water heater at the 50-gallon representative rated 

storage volume are approximately four times the baseline production costs. Specifically, 

manufacturers believe that because this technology results in much more expensive units than the 

majority of products on the market today, not all of the increased costs could be passed on to the 

customer. In addition, the significantly higher production costs would require an additional $256 

million in working capital to purchase significantly more expensive components, carry more 

costly inventory, and handle higher accounts receivable. DOE estimates that the working capital 

requirement and conversion costs would cause electric storage water heater manufacturers to 

incur a total one-time investment of at least $375 million in an electric storage market valued at 

approximately $311 million. Finally, manufacturers believe it is unlikely that they could earn the 

same return on these extremely large investments, so profitability would be expected to decrease 

after the compliance date of the amended energy conservation standards. 

TSL 7 represents an improvement in efficiency from the baseline level of 0.59 EF to 0.80 

EF for gas-fired storage water heaters for the representative rated storage volume of 40 gallons. 

TSL 7 represents an improvement in efficiency from the baseline level of 0.90 EF to 2.2 EF for 

electric storage water heaters at the representative rated storage volume of 50 gallons. At TSL 7, 

DOE estimates the impacts on INPV to range from $62.9 million to -$537.6 million, or a change 

in INPV of 7.47 percent to -63.79 percent. At TSL 7, the industry cash flow is estimated to 

decrease by approximately 171.6 percent, to -$43.7 million, compared to the base-case value of 

$61.0 million in the year leading up to the standards. Because TSL 7 also requires improved heat 

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EE-2006-STD-0129 COMMENT 56.1
 

pump technology (with additional efficiency-related improvements to both the heat pump 

module and the water heater tank), electric storage water heater manufacturers shared the same 

concerns at TSL 7 as they had at TSL 6. Because additional, more-costly improvements to heat 

pump technology are required, however, electric storage water heater manufacturers were more 

concerned about the potential for energy conservation standards to greatly disrupt the industry if 

the amended energy conservation standard were set at TSL 7. 

For gas-fired storage water heaters, TSL 7 requires manufacturers to produce fullycondensing gas-fired storage water heaters, which is significantly more complex than the 

insulation changes required at most lower TSLs. Currently, no manufacturer offers residential 

gas-fired storage water heaters with condensing technology. Manufacturers would need to 

redesign their products at the condensing level, which would force manufacturers to incur 

significant product and capital conversion costs. Some loss in product utility may also occur for 

units that are presently installed in space-constrained applications because condensing water 

heaters require greater installation space to accommodate bigger heat exchangers, fully-installed 

blowers, and other components that non-condensing models do not feature. At the condensing 

level, manufacturers would be required to purchase substantial tooling to fabricate new coil and 

tank designs and make changes to all subassembly and main assembly lines. DOE estimates that 

manufacturers would incur approximately $111 million in capital conversion costs to modify 

their production facilities. Some gas-fired storage water heater manufacturers stated during 

interviews that they would consider moving facilities offshore at TSL 7 to take advantage of 

lower labor costs. In addition, due to the complexity and large size of storage water heaters at 

this efficiency, manufacturers are concerned that installations will be far more difficult and could 

force many consumers to pay substantially higher installed costs if their replacement water 

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EE-2006-STD-0129 COMMENT 56.1
heater does not fit into their existing space. Manufacturers are also concerned about profitability 

if standards were set at a level that would effectively require condensing technology. An 

amended energy conservation standard that effectively mandated condensing gas-fired storage 

water heaters would completely change the existing structure of the industry. Because this 

technology results in much more expensive units than the majority of products on the market 

today, manufacturers argued that not all of the increased costs could be passed on to the 

customer. In addition, the significantly higher production costs would require at least an 

additional $145 million in working capital to purchase significantly more expensive components, 

carry more costly inventory, and handle higher accounts receivable. DOE estimates that the 

working capital requirement and conversion costs would cause gas-fired storage water heater 

manufacturers to incur a total one-time investment of at least $276 million in a gas-fired storage 

market valued at approximately $532 million. While there is a slightly positive impact if 

manufacturers get the same return on these investments as in the base case, manufacturers 

believe that they will not earn the same return from the substantially higher capital requirements 

at TSL 7. 

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ii. Cash-Flow Analysis Results for Oil-Fired Storage Water Heaters 

Table V.20. Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters – 

Preservation of Return on Invested Capital Markup Scenario 

Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 8.7 8.5 8.5 8.5 8.5 8.5 8.5 7.4 

Change in 

INPV 

(2008$ 

millions) - (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (1.3) 

(%) - -1.93% -1.78% -1.96% -1.96% -1.96% -1.96% -14.84% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.3 0.3 0.3 0.3 0.3 0.3 1.0 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.2 0.2 0.2 0.2 0.2 0.2 3.6 

Total 

Investment 

Required 

(2008$ 

millions) - 0.5 0.5 0.5 0.5 0.5 0.5 4.6 

Table V.21. Manufacturer Impact Analysis for Oil-Fired Storage Water Heaters – 

Preservation of Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 8.7 8.3 8.4 8.3 8.3 8.3 8.3 5.2 

Change in 

INPV 

(2008$ 

millions) - (0.3) (0.3) (0.4) (0.4) (0.4) (0.4) (3.5) 

(%) - -3.89% -3.58% -4.31% -4.31% -4.31% -4.31% -39.86% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.3 0.3 0.3 0.3 0.3 0.3 1.0 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.2 0.2 0.2 0.2 0.2 0.2 3.6 

Total 

Investment 

Required 

(2008$ 

millions) - 0.5 0.5 0.5 0.5 0.5 0.5 4.6 

TSL 1 represents an improvement in efficiency for oil-fired storage water heaters from 

the baseline level of 0.53 EF to 0.58 EF for the representative rated storage volume of 32 gallons. 

At TSL 1, DOE estimates the impacts on INPV to range from -$0.2 to -$0.3 million, or a change 

in INPV of -1.93 percent to -3.89 percent. At this level, the industry cash flow would be 

313 

EE-2006-STD-0129 COMMENT 56.1
expected to decrease by approximately 28.5 percent, to $0.4 million, compared to the base-case 

value of $0.6 million in the year leading up to the standards. At TSL 1, one of the two major 

manufacturers would have to incur relatively small product and capital conversion costs to 

slightly modify their existing product line. DOE research suggests that this TSL can be met with 

changes to the insulation thickness of baseline products. However, if more costly design changes 

were required it could have more of an impact on the industry. 

TSL 2 represents an improvement in efficiency from the baseline level of 0.53 EF to 0.60 

EF for the representative rated storage volume of 32 gallons. At TSL 2, DOE estimates the 

impacts on INPV to range from -$0.2 million to -$0.3 million, or a change in INPV of -1.78 

percent to -3.58 percent. At this level, the industry cash flow is estimated to decrease by 

approximately 28.5 percent, to $0.4 million, compared to the base-case value of $0.6 million in 

the year leading up to the standards. Similar to TSL 1, at TSL 2 DOE has tentatively concluded, 

based on a review of existing products on the market, that TSL 2 could be met with changes to 

the type and thickness of the insulation. The impacts at TSL 1 are slightly worse than at TSL 2 

because the technology option for existing oil-fired storage water heaters on the market results in 

lower product costs at TSL 2. However, if TSL 2 is met with similar insulation changes, only one 

of two major manufacturers would still be required to slightly modify their current residential 

oil-fired storage product lines at TSL 2. 

TSLs 3 through TSL 6 represent an improvement in efficiency from the baseline level of 

0.53 EF to 0.62 EF for the representative rated storage volume of 32 gallons. At these levels, 

DOE estimates the impacts on INPV to range from -$0.2 million to -$0.4 million, or a change in 

INPV of -1.96 percent to -4.31 percent. At this level, the industry cash flow decreases by 

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approximately 28.5 percent, to $0.4 million, compared to the base-case value of $0.6 million in 

the year leading up to the standards. At these TSLs, one major manufacturer would have to incur 

relatively minor product and capital conversion costs to modify their existing oil-fired residential 

storage water heater product line. DOE has tentatively concluded based on a review of existing 

products on the market that the efficiency requirements at TSL 3 through TSL 6 could be met 

with changes to the type and thickness of the insulation. Due to the low volume of oil-fired 

storage water heaters, if any manufacturer had to make substantial product or capital conversion 

costs to reach the amended energy conservation standard using a more complex technology, 

these substantial costs could force them to consider exiting the residential oil-fired storage water 

heater market. 

TSL 7 (the max-tech level) represents an improvement in efficiency from the baseline 

level of 0.53 EF to 0.68 EF for the representative rated storage volume of 32 gallons. At TSL 7, 

DOE estimates the impacts on INPV to range from -$1.3 million to -$3.5 million, or a change in 

INPV of -14.84 percent to -39.86 percent. At this level, the industry cash flow is estimated to 

decrease by approximately 342.5 percent, to -$1.3 million, compared to the base-case value of 

$0.6 million in the year leading up to the standards. At TSL 7, at least one major manufacturer 

would have to incur very substantial product and capital conversion to redesign the combustion 

and baffling system to include a multi flue design. Given the small size of the residential oil-fired 

storage water heater market, this manufacturer stated that these extremely large substantial 

product and capital conversion costs would be difficult to justify. At TSL 7, it is possible that 

this manufacturer would exit the residential oil-fired storage water heater market. Because there 

are only two main manufacturers that supply the vast majority of U.S. shipments of oil-fired 

storage water heaters, any manufacturer exiting the market could lead to a market disruption. 

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iii. Cash-Flow Analysis Results for Gas-Fired Instantaneous Water Heaters 

Table V.22. Manufacturer Impact Analysis for Gas-Fired Instantaneous Water Heaters – 

Preservation of Return on Invested Capital Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 603.5 604.7 604.7 604.7 604.7 604.7 604.7 683.8 

Change in 

INPV 

(2008$ 

millions) - 1.2 1.2 1.2 1.2 1.2 1.2 80.3 

(%) - 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 13.31% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 8.0 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.00 0.00 0.0 0.0 0.0 9.6 

Total 

Investment 

Required 

(2008$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 17.6 

Table V.23 Manufacturer Impact Analysis for Gas-Fired Instantaneous Storage Water 

Heaters – Preservation of Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 7 

INPV (2008$ 

millions) 603.5 601.7 601.7 601.7 601.7 601.7 601.7 537.6 

Change in 

INPV 

(2008$ 

millions) - (1.8) (1.8) (1.8) (1.8) (1.8) (1.8) (65.9) 

(%) - -0.30% -0.30% -0.30% -0.30% -0.30% -0.30% -10.91% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 8.0 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 9.6 

Total 

Investment 

Required 

(2008$ 

millions) - 0.0 0.0 0.0 0.0 0.0 0.0 17.6 

TSL 1 through TSL 6 represent an improvement in efficiency from the baseline gas-fired 

instantaneous water heater efficiency level of 0.62 EF to 0.82 EF for the representative input 

capacity of 199 kBtu/h. At TSL 1 through TSL 6, DOE estimates the INPV impacts to range 

from $1.2 million to -$1.8 million, or a change in INPV of 0.20 percent to -0.30 percent. At this 

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EE-2006-STD-0129 COMMENT 56.1
level, the industry cash flow is estimated to remain at the base-case value of $75.0 million in the 

year leading up to the standards. DOE research suggests that over 80 percent of gas-fired 

instantaneous products sold today meet or exceed this efficiency, and nearly all manufacturers of 

gas-fired instantaneous water heaters currently make products that meet or exceed the efficiency 

required by TSL 1 through TSL 6. Hence, there appears to be little risk that TSL 1 through TSL 

6 would greatly harm manufacturers or reduce the number of manufacturers that sell these 

products. 

TSL 7 (the max-tech level) represents an improvement in efficiency from the baseline 

level of 0.62 EF to 0.95 EF for the representative input capacity of 199 kBtu/h. At TSL 7, DOE 

estimates the INPV impacts to range from $80.3 million to -$65.9 million, or a change in INPV 

of 13.31 percent to -10.91 percent. At this level, the industry cash flows are estimated to decrease 

by approximately 5.9 percent to $70.5 million, compared to the base-case value of $75.0 million 

in the year leading up to the standards. Only one manufacturer currently offers a gas-fired 

instantaneous water heater that meets the max-tech efficiency on the U.S. market. Most 

manufacturers would incur substantial product conversion and capital conversion costs to 

upgrade their existing products at TSL 7. To reach 0.95 EF, a more complex condensing model 

would need to be developed. Because only one manufacturer offers products that meet this 

efficiency, TSL 7 could greatly reduce the number of gas-fired instantaneous water heaters 

offered for sale in the United States. 

b. Direct Heating Equipment Cash-Flow Analysis Results 

Traditional DHE manufacturers are extremely concerned about the potential for amended 

energy conservation standards to harm their business. The vast majority of the traditional DHE 

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EE-2006-STD-0129 COMMENT 56.1
market is controlled by three manufacturers. The small shipment volume of products in the 

traditional market has greatly reduced the number of competitors in the past decade. The 

traditional DHE market is mostly a replacement market met by these three companies that have 

acquired product lines as competitors were bought and absorbed or exited the market. Most DHE 

manufacturers offer a wide scope of products manufactured at low production rates to ensure that 

they can maintain a viable portion of the replacement market in order to remain in business. 

Because the traditional DHE market consists of a large number of relatively low-volume, mostly 

replacement models, manufacturers stated that they cannot justify large investments needed to 

redesign their existing product lines. Manufacturers are concerned that amended energy 

conservation standards could greatly impact the availability of replacement products for the 

majority of their customers due to the limited resources that would be available to update 

existing products and make changes to their existing facilities. In addition, manufacturers were 

concerned that energy conservation standards could lower profitability at higher TSLs because 

demand is expected to decline in response to increases in first cost that could cause consumers to 

switch to other types of heating appliances. 

Gas hearth manufacturers were also concerned about potentially detrimental impacts 

from amended energy conservation standards. While there are three major gas hearth DHE 

manufacturers, DOE identified an additional 12 manufacturers in the market and technology 

assessment (see chapter 3 of the TSD). Because consumers generally are more interested in the 

appearance of these products than efficiency, every manufacturer typically offers a wide range of 

product lines and an even greater number of individual products. Manufacturers are concerned 

that higher energy conservation standards could harm their business because they do not have the 

resources to upgrade all these existing product lines and could be forced to offer fewer products 

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after the compliance date for the amended energy conservation standards. Manufacturers were 

also concerned that higher price points could lead to lower profitability. Because of the large 

number of manufacturers and the recent decline in shipments, manufacturers were concerned that 

additional production costs could not be passed on to consumers or that markups would be 

lowered to avoid higher price points leading to lower sales. 

To assess the lower end of the range of potential impacts of amended standards on DHE 

manufacturers, DOE modeled the industry assuming the preservation of return on invested 

capital scenario. Besides the impact of shipments and the required capital and product conversion 

costs on INPV, this scenario assumes that manufacturers are able to maintain their base-case 

return, even on additional invested capital. In this scenario, operating profit increases after the 

compliance date of the amended energy conservation standards because manufacturers continue 

to earn a historical rate of return on the investments required by the amended energy 

conservation standards. 

To assess the higher end of the range of potential impacts of amended standards on the 

DHE industry, DOE modeled the preservation of operating profit markup scenario. In this 

scenario, higher energy conservation standards result in lower manufacturer percentage markups. 

The preservation of operating profit markup scenario models manufacturers’ concerns about the 

low volume of shipments and declining profitability if higher energy conservation standards 

were implemented. The preservation of operating profit scenario also models gas hearth 

manufacturer concerns that amended energy conservation standards would impact profitability 

due to the need to lower their markups to keep customers from switching to non-covered hearth 

products if the energy conservation standards significantly raised the installed prices of covered 

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EE-2006-STD-0129 COMMENT 56.1
 

products. In the preservation of operating profit scenario, manufacturer markups decline so that 

and operating profit remains the same after the compliance date of the amended energy 

conservation standards as in the base case. Industry value is harmed because manufacturers do 

not earn additional return on the investments required by the amended standards. 

i. Cash-Flow Analysis Results for Traditional Direct Heating Equipment (Gas Wall Fan, 

Gas Wall Gravity, Gas Floor, and Gas Room Direct Heating Equipment) 

Table V.24 Manufacturer Impact Analysis for Traditional Direct Heating Equipment – 

Preservation of Return on Invested Capital Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 17.9 17.5 17.3 16.9 16.7 16.2 15.7 

Change in 

INPV 

(2008$ 

millions) - (0.4) (0.6) (1.1) (1.3) (1.8) (2.2) 

(%) - -2.27% -3.42% -5.91% -7.16% -9.99% -12.28% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.6 1.0 1.9 2.4 3.5 4.3 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 1.2 2.4 4.5 5.6 4.7 6.8 

Total 

Investment 

Required 

(2008$ 

millions) - 1.84 3.40 6.39 7.98 8.14 11.03 

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Table V.25 Manufacturer Impact Analysis for Traditional Direct Heating Equipment – 

Preservation of Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 17.9 16.3 14.9 11.9 10.4 9.9 7.2 

Change in 

INPV 

(2008$ 

millions) - (1.6) (3.1) (6.0) (7.6) (8.0) (10.8) 

(%) - -9.11% -17.20% -33.54% -42.14% -44.84% -59.98% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.6 1.0 1.9 2.4 3.5 4.3 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 1.2 2.4 4.5 5.6 4.7 6.8 

Total 

Investment 

Required 

(2008$ 

millions) - 1.84 3.40 6.39 7.98 8.14 11.03 

For traditional DHE, TSL 1 represents an improvement in efficiency from the baseline 

level of 74-percent AFUE to 75-percent AFUE for gas wall fan DHE, an improvement in 

efficiency from the baseline level of 64-percent AFUE to 66-percent for gas wall gravity DHE, 

an improvement in efficiency from the baseline level of 57-percent AFUE to 58-percent AFUE 

for gas floor DHE (the max-tech level), and an improvement in efficiency from the baseline level 

of 64-percent AFUE to 66-percent AFUE for gas room DHE at their respective representative 

input rating ranges. DOE research suggests that manufacturers would use an intermittent ignition 

and a two-speed blower for gas wall fan DHE and an improved heat exchanger design for gas 

wall gravity, gas floor units, and gas room DHE to achieve the efficiencies required by TSL 1. At 

TSL 1, DOE estimates the impacts on INPV to range from $0.4 to -$1.6 million, or a change in 

INPV of -2.27 percent to -9.11 percent. At this level, the industry cash flow is estimated to 

decrease by approximately 45.7 percent, to $0.8 million, compared to the base-case value of $1.4 

million in the year leading up to the standards. While some manufacturers may need to make 

redesigns to some of their products even at TSL 1, manufacturers generally have a significant 

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number of products that meet the required efficiencies for most traditional DHE product types, 

and for this reason, a complete exit from the market by any manufacturer is unlikely. 

TSL 2 represents an improvement in efficiency from the baseline level of 74-percent 

AFUE to 76-percent for gas wall fan DHE, an improvement in efficiency from the baseline level 

of 64-percent AFUE to 68-percent AFUE for gas wall gravity DHE, an improvement in 

efficiency from the baseline level of 57-percent AFUE to 58-percent AFUE for gas floor DHE 

(the max-tech level), and an improvement in efficiency from the baseline level of 64-percent 

AFUE to 67-percent for gas room DHE at the representative input rating ranges for each product 

type. DOE research suggests that at TSL 2, manufacturers would opt to use an improved heat 

exchanger and intermittent ignition for gas wall fan DHE, and make further improvements to the 

heat exchanger for gas wall gravity and gas room DHE, and use the same improved heat 

exchanger for gas floor DHE as at TSL 1 to reach the efficiency levels required by TSL 2. At 

TSL 2, DOE estimates the impacts in INPV to range from -$0.6 million to -$3.1 million, or a 

change in INPV of -3.42 percent to -17.20 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 86.1 percent, to $0.2 million, compared to the base-case 

value of $1.4 million in the year leading up to the standards. At TSL 2, every manufacturer 

would face higher product development costs in order to offer a similar range of product 

offerings. However, at TSL 2, it is likely that more products would be discontinued because 

more of the current products on the market fall below the required efficiencies. As a result, 

manufacturers must either expend resources to cover the necessary product conversion and 

capital conversion costs, or they will be forced to discontinue some of their existing product 

lines. While TSL 2 would have a significant impact on manufacturers, most manufacturers 

would not be expected to face a complete redesign for most traditional DHE product types. Even 

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if manufacturers lowered the number of product lines offered in certain product classes, 

manufacturers would have enough existing products that meet or exceed the required efficiencies 

to upgrade most of their existing product lines and maintain viable production volumes after the 

compliance date of the amended energy conservation standards. 

TSL 3 represents an improvement in efficiency from the baseline level of 74-percent 

AFUE to 77-percent for gas wall fan DHE, an improvement in efficiency from the baseline level 

of 64-percent AFUE to 71-percent AFUE for gas wall gravity units, an improvement in 

efficiency from the baseline level of 57-percent AFUE to 58-percent AFUE for gas floor DHE 

(the max-tech level), and an improvement in efficiency from the baseline level of 64-percent 

AFUE to 68-percent for gas room DHE at the representative input rating ranges. DOE research 

suggests that manufacturers would improve baseline units by adding an intermittent ignition, a 

two-speed blower, and an improved heat exchanger for gas wall fan units, make further 

improvements to the heat exchanger used to reach TSL 2 for gas wall gravity and gas room units, 

and use the same improved heat exchanger for gas floor DHE as at TSL 1 and TSL 2 to reach the 

efficiency levels of TSL 3. At TSL 3, DOE estimates the INPV impacts to range from -$1.1 

million to -$6.0 million, or a change in INPV of -5.91 percent to -33.54 percent. At this level, the 

industry cash flow is estimated to decrease by approximately 161.8 percent to -$0.9 million, 

compared to the base-case value of 1.4 million in the year leading up to the standards. The large 

estimated impact on INPV suggests that manufacturers would be substantially harmed if 

profitability were impacted. 

At TSL 3, products increasingly rely on purchased parts, making it more likely that 

manufacturers’ profitability would decline. At TSL 3, it is likely that some manufacturers would 

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reduce the number of product lines offered in order to lower the product conversion and capital 

conversion costs required at TSL 3. Discontinuing product lines would still have a negative 

impact on the manufacturers that selectively upgrade existing product lines since many 

manufacturers rely on aggregated production scale from all products they sell to secure favorable 

purchased part and raw material prices. The fixed portion of product conversion costs, such as 

certification and the total capital conversion costs, typically require a minimum shipment volume 

in order to be economically justifiable to the manufacturer. However, at TSL 3, most 

manufacturers have existing products that meet the required efficiencies in three out of the four 

product types of traditional DHE. Because manufacturers have a substantial number of product 

lines that meet the required efficiencies at TSL3, even if manufacturers selectively upgrade their 

existing product lines, they would be expected to maintain a viable production volume after the 

compliance date of the amended energy conservation and not exit the market completely. 

TSL 4 is the max-tech level for gas wall fan DHE. TSL 4 represents an improvement in 

efficiency from the baseline level of 74-percent AFUE to 80-percent for gas wall fan DHE at the 

representative input rating range. The efficiency requirements for gas wall gravity, gas floor, and 

gas room DHE are the same at TSL 4 as at TSL 3. To achieve the max-tech level for gas wall fan 

DHE, DOE research suggests that manufacturers would need to use an electronic ignition and 

induced draft. DOE anticipates that manufacturers would make the same improvements to the 

heat exchangers as necessary to achieve TSL 3 for gas wall gravity, gas floor, and gas-room 

DHE. At TSL 4, DOE estimates the INPV impacts to range from -$1.3 million to -$7.6 million, 

or a change in INPV of -7.16 percent to -42.14 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 202.3 percent to -$1.4 million, compared to the basecase value of $1.4 million in the year leading up to the standards. 

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Most manufacturers’ products are below the max-tech level for gas wall fan DHE, which 

further increases the total capital and product conversion costs over TSL 3. At TSL 4, most 

manufacturers would have to completely redesign their gas wall fan products and purchase new 

tooling. The discrepancy between the number of unit shipments and the number of product lines 

requiring significant product development to meet the potential energy conservation standards is 

a large driver of the negative impacts at TSL 4. When faced with these substantial costs, most 

manufacturers would likely discontinue products in this product class or possibly exit the market 

altogether. In addition, at TSL 4 every manufacturer would face significant conversion costs in 

every product type, making it much more likely that the industry would offer far fewer products 

and that the industry would have fewer competitors after the compliance date of amended 

standards. Besides the likelihood of multiple manufacturers discontinuing product lines or 

exiting the market, the large impact on INPV shows that manufacturers would also be 

substantially harmed if profitability were impacted for existing or redesigned products. 

TSL 5 represents an improvement in efficiency from the baseline level of 74-percent 

AFUE to 75-percent AFUE for gas wall fan DHE, an improvement in efficiency from the 

baseline level of 64-percent AFUE to 72-percent AFUE for gas wall gravity units (the max-tech 

level), an improvement in efficiency from the baseline level of 57-percent AFUE to 58-percent 

AFUE for gas floor DHE (the max-tech level), and an improvement in efficiency from the 

baseline level of 64-percent AFUE to 83-percent AFUE (the max-tech level) for gas room DHE 

at the representative input rating ranges for each product type. To achieve the efficiencies 

required by TSL 5, DOE research suggests that manufacturers would need to use an intermittent 

ignition and a two-speed blower for gas wall fan DHE, use an electronic ignition for gas wall 

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EE-2006-STD-0129 COMMENT 56.1
 

 

gravity DHE, use an improved heat exchanger for gas floor DHE, and use electronic ignition and 

a multiple heat exchanger design for gas room DHE. At TSL 5, DOE estimates the impacts on 

INPV to range from -$1.8 million to -$8.0 million, or a change in INPV of -9.99 percent to ­

44.84 percent. At this level, the industry cash flow is estimated to decrease by approximately 

195.5 percent, to -$1.3 million, compared to the base-case value of $1.4 million in the year 

leading up to the standards. 

Most traditional DHE models available on the market today are below the max-tech level 

for gas wall gravity and gas room DHE, which leads to higher total capital and product 

conversion costs and more negative impacts on INPV at TSL 5 than TSL 4. DOE research 

suggests that at TSL 5, most manufacturers would have to completely redesign and buy new 

tooling in order to offer gas wall gravity and gas room products at these efficiency levels. The 

small number of unit shipments and the large number of product lines that would require 

significant product development to meet the energy conservation standards is a large driver of 

the negative impacts at TSL 5. Hence, the potential number of product lines being discontinued 

and the number of manufacturers exiting the market at TSL 5 would be expected to be greater 

than at TSL 4, with even greater repercussions on consumer choice, employment, and 

competition. 

TSL 6 is set at the max-tech level for all traditional DHE product classes. The efficiency 

requirements for gas wall gravity, gas floor, and gas room DHE are the same at TSL 6 as at TSL 

5. However, TSL 6 also represents an improvement from 75-percent to 80-percent AFUE for gas 

wall fan DHE (the max-tech level). To achieve the max-tech level for gas wall fan DHE, DOE 

research suggests that manufacturers would need to use an electronic ignition and induced draft. 

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As to the other products, DOE anticipates that manufacturers would need to use an electronic 

ignition for gas wall gravity DHE, use an improved heat exchanger for gas floor DHE, and use 

electronic ignition and a multiple heat exchanger design for gas room DHE. At the max-tech 

TSL (TSL 6), DOE estimates the INPV impacts to range from -$2.2 million to -$10.8 million, or 

a change in INPV of -12.28 percent to -59.98. At this level, the industry cash flow is estimated to 

decrease by approximately 269.5 percent to -$2.4 million, compared to the base-case value of 

$1.4 million in the year leading up to the standards. Most products currently available are below 

the max-tech level for all product classes. At the max-tech level, most manufacturers would be 

faced with complete product redesigns for almost all product lines and significant plant changes 

to remain in the market. Most manufacturers would be expected to discontinue products or exit 

the market altogether. Due to the low volume of shipments in the industry, it unlikely that any 

manufacturer could offer close to the range of products currently offered today. Hence, some 

product classes may cease to be commercially available. It is very likely that multiple 

manufacturers would exit the market at the max-tech level for every product class. 

ii. Cash-Flow Analysis Results for Gas Hearth Direct Heating Equipment 

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Table V.26 Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment – 

Preservation of Return on Invested Capital Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 86.4 85.5 85.5 85.5 88.8 88.8 96.6 

Change in 

INPV 

(2008$ 

millions) - (0.9) (0.9) (0.9) 2.4 2.4 10.2 

(%) - -1.07% -1.07% -1.07% 2.80% 2.80% 11.82% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.53 0.53 0.53 1.40 1.40 8.07 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.20 0.20 0.20 0.53 0.53 4.03 

Total 

Investment 

Required 

(2008$ 

millions) - 0.73 0.73 0.73 1.93 1.93 12.09 

Table V.27 Manufacturer Impact Analysis for Gas Hearth Direct Heating Equipment – 

Preservation of Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 86.4 86.2 86.2 86.2 71.6 71.6 31.2 

Change in 

INPV 

(2008$ 

millions) - (0.2) (0.2) (0.2) (14.8) (14.8) (55.1) 

(%) - -0.22% -0.22% -0.22% -17.13% -17.13% -63.83% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.53 0.53 0.53 1.40 1.40 8.07 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.20 0.20 0.20 0.53 0.53 4.03 

Total 

Investment 

Required 

(2008$ 

millions) - 0.73 0.73 0.73 1.93 1.93 12.09 

TSL 1 through TSL 3 represents an improvement in efficiency from the baseline level of 

64-percent AFUE to 67-percent AFUE for gas hearth DHE at the 27,000 Btu/h to 46,000 Btu/h 

representative input rating range. To reach 67-percent AFUE from baseline efficiency, 

manufacturers would likely use an electronic ignition. At TSL 1 through TSL 3, DOE estimates 

the impacts on INPV to range from -$0.2 million to -$0.9 million, or a change in INPV of -0.22 

percent to -1.07 percent. At this level, the industry cash flow is estimated to decrease by 

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EE-2006-STD-0129 COMMENT 56.1
approximately 7.6 percent, to $2.6 million, compared to the base-case value of $2.8 million in 

the year leading up to the standards. Most manufacturers offer multiple products that meet this 

efficiency level. Because there are so many product lines at the baseline efficiency, however, 

there could be fairly substantial product conversion costs at this TSL because manufacturers 

would have to slightly redesign all of the baseline products. In addition, some manufacturers 

could be required to make other minor changes to their production lines to accommodate other 

improvements such as additional baffling. DOE research suggests that such changes may be 

inexpensive since they would not require the industry to replace major hard tooling at TSL 1 

through TSL 3. Because of the small change in product costs at TSL 1 through TSL 3, it is 

unlikely that manufacturer profitability would decrease appreciably to maintain the existing 

shipments. 

TSL 4 and TSL 5 represent an improvement in efficiency from the baseline level of 64­

percent AFUE to 72-percent AFUE for gas hearth DHE at the 27,000 Btu/h to 46,000 Btu/h 

representative input rating range. DOE research suggests that fan-assisted gas hearth DHE 

products could reach 72-percent AFUE from baseline efficiency. At TSL 4 and TSL 5, DOE 

estimates the impacts on INPV to range from $2.4 million to -$14.8 million, or a change in INPV 

of 2.80 percent to -17.13 percent. At this level, the industry cash flow is estimated to decrease by 

approximately 19.9 percent, to $2.3 million, compared to the base-case value of $2.8 million in 

the year leading up to the standards. At TSL 4 and TSL 5, gas hearth manufacturers would likely 

reduce the scope of their product offerings to lower the required conversion costs to comply with 

the energy conservation standard. Many of the smaller manufacturers could consider existing the 

market when faced with fairly substantial product and capital conversion costs that are not 

justified by their shipment volumes. Much of the capital conversion costs are expected to involve 

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EE-2006-STD-0129 COMMENT 56.1
changes to handle new materials like additional insulation and baffling, changes to the heat 

shields, and new stamping dies for many manufacturers that need to greatly alter their existing 

designs. Manufacturers will also incur additional product conversion costs for product 

development and certification because most products currently sold would not meet the 

efficiency requirements of TSL 4 and TSL 5. While most of the changes above the baseline 

require manufacturers to purchase or manufacture more costly components that increase MPC, 

the resulting higher MSPs also concerned manufacturers. Manufacturers stated that the market is 

very price sensitive, so any increase in unit price could invariably lead to fewer sales. Hence, 

manufacturers expect that the industry would have to lower its profit margins in order to reduce 

shipments impacts that could result from cost increases related to potential energy efficiency 

improvements. 

TSL 6 represents an improvement in efficiency from the baseline level of 64-percent 

AFUE to 93-percent AFUE for gas hearth DHE at the 27,000 Btu/h to 46,000 Btu/h 

representative input rating range. To reach 93-percent AFUE from the baseline efficiency, 

manufacturers would need to use a condensing design. At the max-tech TSL (TSL 6), DOE 

estimates the impacts on INPV to range from $10.2 million to -$55.1 million, or a change in 

INPV of 11.82 percent to -63.83 percent. At this level, the industry cash flow is estimated to 

decrease by approximately 128.8 percent, to -$0.8 million, compared to the base-case value of 

$2.8 million in the year leading up to the standards. 

At TSL 6, manufacturers indicated they would greatly reduce the scope of their product 

offerings to lower the required costs to comply with an amended energy conservation standard at 

this level. Because there are very few products on the market today that use this technology, the 

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EE-2006-STD-0129 COMMENT 56.1
 

product development costs greatly increase at this TSL. DOE research suggests that 

manufacturers would likely need a secondary heat exchanger at the max-tech level, which could 

alter the size and structure of most existing product lines. Manufacturers expressed concern 

regarding their ability to use existing tooling and equipment, much of which may become 

obsolete when hearths have to be redesigned from the ground up to accommodate the efficiency 

requirements at this level. It is also very likely that many of the 10 small business manufacturers 

could be forced to exit the market when faced with these substantial conversion costs since they 

do not have the access to capital, the product development resources, or the shipment volumes to 

justify these conversion costs. 

Manufacturers also stated that they were concerned about consumer utility issues at TSL 

6. Smaller units would likely be significantly impacted at this TSL because the low inherent 

interior volume makes it much more difficult to accommodate a secondary heat exchanger 

without narrowing the area available for the logs and flame. Manufacturers also indicated that it 

gets progressively more difficult to imitate a natural, wood-burning flame appearance at this 

efficiency level, which could hurt sales and reduce consumer utility. Finally, manufacturers were 

concerned that the MPCs at the max-tech level are estimated to be more than double the baseline 

costs for the representative input rating range. In order to maintain shipments of gas hearth DHE 

with substantially higher costs and potential consumer utility impacts, manufacturers believe that 

profitability would be greatly impacted. 

c. Pool Heaters Cash-Flow Analysis Results 

Pool heater manufacturers expressed concern that amended energy conservation 

standards could cause significant harm to their industry, because pool heaters are a luxury item 

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EE-2006-STD-0129 COMMENT 56.1
 

and have low annual usage that would prevent the majority of consumers from recouping the 

greater initial price at higher efficiencies. Since pool heaters are considered a luxury product, 

manufacturers expect sales to decline as unit costs increase. As the required efficiencies 

approach a condensing technology, manufacturers would have to make more substantial changes 

to their existing products that add significant costs that would encourage repair instead of 

replacement of failed units, cause fuel switching (e.g., to heat pumps or solar systems), or make 

customers abandon heating their pool altogether. 

To assess the lower end of the range of potential impacts on pool heater manufacturers, 

DOE modeled the preservation of return on invested capital markup scenario. Besides the impact 

of changes in shipments on INPV and the required capital and product conversion costs, this case 

represents the lower end of the potential impacts on manufacturers because it assumes that 

manufacturers would earn a similar return on the investments required by amended energy 

conservation standards. To assess the higher end of the range of potential impacts on pool heater 

manufacturers, DOE modeled the preservation of operating profit markup scenario (i.e., constant 

absolute profit, regardless of cost increases, which leads to declining profit margins at higher 

costs). This scenario models manufacturers concerns that margins would be harmed at higher 

price points because they expect to lower their profit margins to minimize impacts due to lower 

sales. 

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Table V.28 Manufacturer Impact Analysis for Gas-Fired Pool Heaters – Preservation of 

Return on Invested Capital Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 61.4 61.4 61.8 61.1 61.9 64.5 74.2 

Change in 

INPV 

(2008$ 

millions) - 0.1 0.4 (0.2) 0.5 3.1 12.9 

(%) - 0.13% 0.66% -0.39% 0.88% 5.03% 20.96% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.0 2.6 2.6 4.6 5.5 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.3 1.2 1.4 4.4 7.1 

Total 

Investment 

Required 

(2008$ 

millions) - 0.0 0.3 3.8 4.0 9.0 12.6 

Table V.29 Manufacturer Impact Analysis for Gas-Fired Pool Heaters – Preservation of 

Operating Profit Markup Scenario 

 Units Base 

Case 

Trial Standard Level 

1 2 3 4 5 6 

INPV (2008$ 

millions) 61.4 61.2 60.3 55.8 53.9 41.8 16.8 

Change in 

INPV 

(2008$ 

millions) - (0.2) (1.0) (5.6) (7.5) (19.5) (44.5) 

(%) - -0.29% -1.66% -9.06% -12.15% -31.82% -

72.59% 

Product 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.0 2.6 2.6 4.6 5.5 

Capital 

Conversion 

Costs 

(2008$ 

millions) - 0.0 0.3 1.2 1.4 4.4 7.1 

Total 

Investment 

Required 

(2008$ 

millions) - 0.0 0.3 3.8 4.0 9.0 12.6 

TSL 1 represents an improvement in efficiency from the baseline level of 78-percent 

thermal efficiency to 81-percent thermal efficiency for the representative input rating of 250,000 

Btu/h. At TSL 1, DOE estimates the INPV impacts to range from $0.1 million to -$0.2 million, 

or a change in INPV of 0.13 percent to -0.29 percent. At this level, the industry cash flow would 

not be expected to change from the base-case value of $2.7 million in the year leading up to the 

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EE-2006-STD-0129 COMMENT 56.1
standards. Over 60 percent of current gas-fired pool heaters meet or exceed the efficiency 

requirements at TSL 1. DOE research suggests that changes to the heat exchanger would allow 

baseline products to meet TSL 1. These changes would not require major modifications to 

existing units, resulting in minimal impacts to manufacturers at TSL 1. 

TSL 2 represents an improvement in efficiency from the baseline level of 78-percent 

thermal efficiency to 82-percent thermal efficiency for the representative input rating of 250,000 

Btu/h. At TSL 2, DOE estimates the INPV impacts to range from $0.4 to -$1.0 million, or a 

change in INPV of 0.66 percent to -1.66 percent. At this level, the industry cash flow is expected 

to decrease by approximately 3.9 percent to $2.6 million, compared to the base-case value of 

$2.7 million in the year leading up to the standards. Almost half of the pool heaters currently are 

sold at or above this efficiency level, and nearly all manufacturers make products that can 

achieve the efficiency required at TSL 2. DOE research suggests that minor improvements to 

heat exchangers and insulation surrounding the combustion chamber would need to be made to 

convert lower-efficiency units to this efficiency, causing manufacturers to incur small capital 

conversion costs. However, because the basic designs of atmospheric pool heaters that comprise 

the majority of current shipments remain relatively unchanged at TSL 2, there are minimal 

impacts on manufacturers. 

TSL 3 represents an improvement in efficiency from the baseline level of 78-percent 

thermal efficiency to 83-percent thermal efficiency for the representative input rating of 250,000 

Btu/h. At TSL 3, DOE estimates the INPV impacts to range from -$0.2 to -$5.6 million, or a 

change in INPV of -0.39 percent to -9.06 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 43.0 percent to $1.6 million, compared to the base-case 

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EE-2006-STD-0129 COMMENT 56.1
 

 

value of $2.7 million in the year leading up to the standards. DOE research suggests that most 

manufacturers would have to improve some of their product lines to reach an 83-percent thermal 

efficiency by using power venting technology. DOE research also suggests that while the 

manufacturing production costs are not expected to increase significantly, most manufacturers 

would incur some product and capital conversion costs to increase their production of existing 

lower volume products at TSL 3. TSL 3 would eliminate most common atmospheric models on 

the market today, which could hurt profitability if consumer demand for gas-fired pool heaters 

holds at its current level despite the higher production costs at this TSL. 

TSL 4 represents an improvement in efficiency from the baseline level of 78-percent 

thermal efficiency to 84-percent thermal efficiency for the representative input rating of 250,000 

Btu/h. At TSL 4, DOE estimates the INPV impacts to range from $0.5 million to -$7.5 million, 

or a change in INPV of 0.88 percent to -12.15 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 45.9 percent to $1.5 million, compared to the base-case 

value of $2.7 million in the year leading up to the standards. Similar to TSL 3, TSL 4 would 

require fairly substantial capital and product conversion costs. Because this efficiency level 

eliminates all atmospheric models that are currently on the market and requires additional 

improvements over TSL 3, the capital conversion costs are even higher at TSL 4. DOE research 

suggests that manufacturers would have to design products that use power venting and an 

improve heat exchanger, which could be costly to develop. Manufacturers stated that the high 

component costs at TSL 4 would result in substantially higher costs for consumers. The higher 

production costs and conversion costs make it more likely that manufacturers’ concerns about 

reduced profitability would be realized at TSL 4. 

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EE-2006-STD-0129 COMMENT 56.1
TSL 5 represents an improvement in efficiency from the baseline level of 78-percent 

thermal efficiency to 86-percent thermal efficiency for the representative input rating of 250,000 

Btu/h. At TSL 5, DOE estimates the INPV impacts to range from $3.1 million to -$19.5 million, 

or a change in INPV of 5.03 percent to -31.82 percent. At this level, the industry cash flow is 

estimated to decrease by approximately 108.9 percent to -$0.2 million, compared to the basecase value of $2.7 million in the year leading up to the standards. Over 90 percent of current 

shipments are below this efficiency level. Manufacturers would incur a significant conversion 

costs at TSL 5 and would likely significantly reduce the scope of their product offerings. DOE 

research suggests that manufacturers would switch remaining units to sealed combustion systems 

and improved heat exchanger designs, adding substantial production cost and eliminating 

unpowered units from the market. Manufacturers believe that consumers would look for 

alternatives to gas-fired pool heaters or not replace failed units due to the higher product costs 

that would result from an amended energy conservation standard at TSL 5. Manufacturers also 

indicated that problems at efficiencies they consider near-condensing could force some 

companies to only offer fully condensing units with even greater negative paybacks for 

consumers. A further concern of manufacturers relates to the current installer and maintenance 

base for pool heaters, which would require significant additional training to be able to properly 

install, troubleshoot, and service increasingly complex pool heaters. 

TSL 6 (max-tech level) represents an improvement in efficiency from the baseline level 

of 78-percent thermal efficiency to 95-percent thermal efficiency for the representative input 

rating of 250,000 Btu/h. At TSL 6, DOE estimates the INPV impacts to range from $12.9 million 

to -$44.5 million, or a change in INPV of 20.96 percent to -72.59 percent. At this level, the 

industry cash flow is estimated to decrease by approximately 157.2 percent to -$1.6 million, 

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EE-2006-STD-0129 COMMENT 56.1
 

compared to the base-case value of $2.7 million in the year leading up to the standards. Almost 

all gas-fired pool heaters currently on the market are well below this efficiency level. 

Manufacturers would face significant conversion costs at TSL 6 in order to develop condensing 

systems or refine existing designs to achieve lower cost condensing pool heaters. DOE research 

suggests that heat exchanger materials would need to withstand acidic condensate created by 

condensing pool heaters. In light of strong concerns about consumer reaction to a substantiallyincreased first cost at TSL 6, manufacturers do not believe this efficiency level could be justified 

for residential pool heater consumers due to low usage and significantly higher costs. 

Manufacturers believe that consumers would not be willing to purchase such an expensive 

product and would either find an alternative to gas-fired pool heaters or no longer purchase a 

gas-fired pool heater. In addition, at TSL 6 manufacturers are also concerned about the industry’s 

ability to educate and retrain installers and servicers of pool heaters in time for the compliance 

date of the standard. Condensing units with sealed combustion are more complex than the vast 

majority of atmospheric units on the market today and would require significant additional 

training for safe installation and maintenance. Manufacturers also expect product support costs to 

increase significantly as complexity increases the likelihood and frequency of events such as 

component failures and unit lockouts that would require manufacturer support and servicing, as 

well as increased warranty costs. Besides increasing warranty costs for manufacturers, the issues 

and costs associated with proper unit maintenance post-warranty could potentially cause them to 

switch fuel sources (e.g., switching to heat pump or solar water heaters) or abandon pool heating 

altogether. 

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EE-2006-STD-0129 COMMENT 56.1
d. Impacts on Employment 

DOE quantitatively assessed the impacts of potential amended energy conservation 

standards on employment for each of the three types of heating products that are the subject of 

this rulemaking. DOE used the GRIM to estimate the domestic labor expenditures and number of 

domestic production workers in the base case and at each TSL from 2008 to 2045 for the 

residential water heater industry and from 2008 to 2043 for the DHE and pool heater industries. 

DOE used statistical data from the U.S. Census Bureau, the results of the engineering analysis, 

and interviews with manufacturers to determine the inputs necessary to calculate industry-wide 

labor expenditures and domestic employment levels. Labor expenditures are a function of the 

labor intensity of the equipment, the sales volume, and an assumption that wages remain fixed in 

real terms over time. 

In each GRIM, DOE used the labor content of each product and the manufacturing 

production costs from the engineering analysis to estimate the annual labor expenditures in the 

residential water heater, DHE, and pool heater industries. DOE used Census data and interviews 

with manufacturers to estimate the portion of the total labor expenditures that is for U.S. (i.e., 

domestic) labor. 

The estimates of production workers in this section only cover workers up to the linesupervisor level that are directly involved in fabricating and assembling a product within the 

Original Equipment Manufacturer (OEM) facility. Workers that perform services that are closely 

associated with production operations, such as material handing with a forklift, are also included 

as production labor. DOE’s estimates only account for production workers that manufacture the 

specific products covered by this rulemaking. For example, a worker on a commercial water 

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EE-2006-STD-0129 COMMENT 56.1
heater line would not be included with the estimate of the number of residential water heater 

production workers. 

The employment impacts shown in Table V.30 through Table V.34 represent the 

potential production employment that could result following amended energy conservation 

standards. The upper end of the results in these tables estimates the maximum potential increase 

in production workers after amended energy conservation standards. The upper end of the results 

assumes manufacturers would continue to produce the same scope of covered products in the 

same production facilities. The upper end of the range also assumes that domestic production is 

not shifted to lower-labor-cost countries. Because there is a real risk of manufacturers exiting the 

market or no longer offering the same scope of covered products in response to amended energy 

conservation standards, the lower end of the range of employment results in Table V.30 through 

Table V.34 include the estimate of the total number of U.S. production workers in the industry 

that could lose their job if all existing production were to no longer be made domestically. While 

the results present a range of employment impacts following the compliance date of amended 

energy conservation standards, the discussion below also includes a qualitative discussion of the 

likelihood of negative employment impacts at the various TSLs. Finally, the employment 

impacts shown are independent of the employment impacts from the broader U.S. economy, 

which are documented in chapter 15, Employment Impact Analysis, of the NOPR TSD. 

i. Gas-Fired and Electric Storage Water Heater Employment Impacts 

Using the GRIM, DOE estimates that would be 3,690 domestic gas-fired and electric 

storage water heater production workers in 2015 without amended energy conservation 

standards. Using Census Bureau data and interviews with manufacturers, DOE estimates that 

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EE-2006-STD-0129 COMMENT 56.1
 

 

approximately two-thirds of gas-fired and electric storage water heaters sold in the United States 

are manufactured domestically. Table V.30 shows the range of the impacts of potential amended 

energy conservation standards on U.S. production workers in the gas-fired and electric storage 

water heater market. 

Table V.30. Potential Changes in the Total Number of Domestic Gas-Fired and Electric 

Storage Water Heater Production Workers in 2015 

Baseline 1 2 3 4 5 6 7 

Total Number of 

Domestic Production 

Workers in 2015 

(without changes in 

production locations) 

3,690 3,758 3,842 3,881 3,977 4,396 7.768 9,823 

Potential Changes in 

Domestic Production 

Workers in 2015* 

- (3,690) ­

68 

(3,690) ­

152 

(3,690) ­

191 

(3,690) ­

287 

(3,690) ­

706 

(3,690) ­

4,078 

(3,690) ­

6,133 

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers. 

During manufacturer interviews, gas-fired and electric storage water heater 

manufacturers stated that they expect employment levels to remain relatively constant at TSL 1 

through TSL 4. At these TSLs, baseline gas-fired and electric storage water heaters would be 

improved by increasing the insulation thickness around the tank. These improvements would not 

greatly alter the manufacturing process and are not likely to significantly change employment 

levels. 

At TSL 5, domestic employment would be likely to increase if manufacturers built their 

dedicate heat pump line for large rated storage volumes in the United States. However, because 

the labor content to assemble fully integrated heat pump water heaters is much higher than most 

models currently on the market, manufacturers could also decide to build these lines in existing 

overseas production facilities. At TSL 5, the sourcing decisions would also impact the likely 

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EE-2006-STD-0129 COMMENT 56.1
 

employment impacts. If manufacturers built a dedicated condensing line for large rated storage 

volumes in the United States, domestic employment could increase. 

TSL 6 and TSL 7 could also impact domestic gas-fired and electric storage water heater 

employment. These TSLs effectively would require the use of integrated heat pump water heater 

technology for electric storage water heaters for all rate volumes. Manufacturers stated that at 

these levels, they initially would expect to purchase fully-assembled heat pump modules from 

off-shore suppliers because they do not have the manufacturing experience or the space in their 

existing facilities to accommodate assembling the heat hump modules. Once purchased, 

manufacturers would attach the modules to water heaters on lines modified to accommodate the 

very different assembly and testing requirements of heat pump water heaters. While the industry 

typically has manufacturing facilities with a mix of dedicated and non-dedicated assembly lines 

by fuel type, flexible assembly lines may have to be discontinued at TSL 6, because heat pump 

water heaters are top-heavy, take longer to test, and take significantly longer to assemble than 

electric storage water heaters that use resistance-heater elements. Present facilities would likely 

need line extensions to accommodate the additional labor required for assembling heat pump 

water heaters. Therefore, if manufacturers source the heat pump modules and continue to 

assemble electric storage water heaters in their existing facilities, it is likely that employment 

would increase. However, the expected increase in the labor required to manufacture heat pump 

water heaters may also accelerate the trend of water heater manufacturers locating new 

production facilities outside the United States, especially if a manufacturer decides to assemble 

heat pump modules in-house. Because TSL 7 requires additional improvements over TSL 6, the 

potential positive impacts on employment at TSL 7 are greater if manufacturers do not relocate 

because the additional improvements also require more labor. 

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At TSL 7 (the max-tech level) gas-fired storage water heaters would have to operate in a 

fully-condensing mode. DOE research suggests that condensing gas-fired water heaters would be 

more complex than standard power-vent products and less efficient products and therefore would 

require additional labor to assemble. If manufacturers did not change their sourcing decisions at 

TSL 7, it is likely there would be positive employment impacts for gas-fired storage water 

heaters. 

ii. Oil-Fired Storage Water Heater Employment Impacts 

Using the GRIM, DOE estimates there would be 38 oil-fired storage water heater 

production workers in the U.S. in 2015 in the absence of amended energy conservation 

standards. Using the Census data and interviews with manufacturers, DOE estimates that 

approximately 95 percent of oil-fired water heaters sold in the United States are manufactured 

domestically. Table V.31 shows the impacts of amended energy conservation standards on U.S. 

production workers in the oil-fired water heater market. 

Table V.31 Potential Changes in the Total Number of Domestic Oil-Fired Storage Water 

Heater Production Workers in 2015 

Trial Standard Level 

Baseline 1 2 3 4 5 6 7 

Total Number of 

Domestic Production 

Workers in 2015 

(without changes in 

production locations) 

38 37 40 37 37 37 37 47 

Potential Changes in 

Domestic Production 

Workers in 2015* 

- (38) ­

(1) (38) - 2 (38) ­(1) 

(38) ­

(1) (38) - (1) (38) - (1) (38) - 9 

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers. 

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At TSL 1 through TSL 6, DOE does not expect substantial changes to domestic 

employment in the oil-fired storage water heater market if manufacturers are able to use the 

insulation type and thickness technology options in the engineering analysis to reach the 

efficiency requirements at these TSLs. At TSL 7, DOE research suggests that if all current 

suppliers continue to compete, domestic employment would likely increase slightly, because the 

non-proprietary, higher-efficiency heat exchangers required to reach this TSL would also require 

more labor to assemble. However, given the size of the oil-fired storage water heater market and 

the expected product conversion costs, companies that do not currently make oil-fired storage 

water heaters at these efficiency levels could exit the market. If the remaining manufacturers do 

not need to increase employment levels to meet the total market demand, employment in the 

residential oil-fired market could decline. 

iii. Gas-Fired Instantaneous Water Heater Employment Impacts 

DOE’s research suggests that currently no gas-fired instantaneous water heaters are made 

domestically. All manufacturers or their domestic distributors do maintain offices in the United 

States to handle technical support, training, certification, and other requirements. However, as 

amended energy conservation standards for instantaneous water heaters are raised, the additional 

complexity of standards-compliant water heaters may require additional training and field 

support, thereby resulting in higher employment levels. Thus domestic employment may 

increase marginally due to amended energy conservation standards. 

iv. Traditional Direct Heating Equipment Employment Impacts 

Using the GRIM, DOE estimates there would be 300 traditional DHE production workers 

in the U.S. in 2013 in the absence of amended energy conservation standards. Using the Census 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Bureau data and interviews with manufacturers, DOE estimates that approximately 100 percent 

of the traditional DHE sold in the United States is manufactured domestically. Table V.32 shows 

the impacts of amended energy conservation standards on U.S. production workers in the 

traditional DHE market. 

Table V.32 Potential Changes in the Total Number of Domestic Traditional Direct Heating 

Production Workers in 2013 

Trial Standard Level 

Baseline 1 2 3 4 5 6 

Total Number of 

Domestic Production 

Workers in 2013 

(without changes in 

production locations) 

300 305 330 344 350 348 361 

Potential Changes in 

Domestic Production 

Workers in 2013* 

- (300) - 5 (300) ­

30 

(300) ­

44 

(300) ­

50 

(300) ­

48 

(300) ­

61 

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers. 

There could be negative employment impacts for DHE at any of the considered TSLs if 

manufacturers’ expectations are realized regarding higher prices yielding reduced demand. 

Besides increasing component costs, more stringent TSLs put additional pressure on 

manufacturers that could require them to invest in low-volume products, discontinue product 

lines that do not meet the required efficiency level, or exit the market altogether. 

While multiple manufacturers could be adversely affected by amended energy 

conservation standards, at TSL 1 and TSL2, most businesses have existing products in at least 

three of the four traditional DHE product types. If manufacturers chose to expand production of 

those products that meet the required efficiencies, employment could increase. However, 

multiple small businesses would be adversely affected at any TSL and could decide to 

discontinue some product lines rather than invest in product lines with very low volumes. Any 

344
 

EE-2006-STD-0129 COMMENT 56.1
 

manufacturer that decided to discontinue product lines could reduce total employment within the 

industry if it impacted the availability of substitute replacement products. Net employment 

impacts if manufacturers discontinued product lines at TSL 1 and TSL 2 would depend on total 

product demand and the source of replacement production labor. At TSL 3 and above, products 

become increasingly more complex, require higher capital and product conversion costs, and, 

hence, are likely to lead to the discontinuation of more product lines. Additionally, every 

manufacturer would face product conversion costs that required a complete redesign for at least 

one product class at TSL 3 and above. An amended energy conservation standard at TSL 3 and 

above could cause small businesses to exit the market completely or stop producing certain 

product classes. If small and large manufacturers discontinued product lines or exited the market, 

domestic employment would be impacted if replacements were not available or a manufacturer 

exited the market and its market share was not captured by another manufacturer. 

v. Gas Hearth Direct Heating Equipment Employment Impacts 

Using the GRIM, DOE estimates there would be 1,243 gas hearth DHE production 

workers in the U.S. in 2013 in the absence of amended energy conservation standards. Based 

upon interviews with manufacturers, DOE estimates that approximately 80 percent of gas hearth 

DHE sold in the United States is manufactured domestically. Table V.33 shows the impacts of 

potential amended energy conservation standards on U.S. production workers in the gas hearth 

DHE market. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

Table V.33 Potential Changes in the Total Number of Domestic Gas Hearth Direct Heating 

Equipment Production Workers in 2013 

Trial Standard Level 

Baseline 1 2 3 4 5 6 

Total Number of 

Domestic Production 

Workers in 2013 

(without changes in 

production locations) 

1,243 1,250 1,250 1,250 1,759 1,759 2,089 

Potential Changes in 

Domestic Production 

Workers in 2013* 

- (1,243) ­

7 

(1,243) ­

7 

(1,243) ­

7 

(1,243) ­

516 

(1,243) ­

516 

(1,243) ­

846 

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers. 

DOE does not expect significant employment impacts at TSL 1 through TSL 3. A 

substantial portion of the industry already has products that meet the requisite efficiencies 

required by these TSLs and DOE research suggests manufacturers can make products at these 

TSLs by replacing standing pilot ignition systems with electronic ignition systems. For TSL 4 

through TSL 6, manufacturers would be increasingly likely to exit the market or reduce their 

product offerings. At TSL 4 and TSL 5, air circulating blowers are required and, at TSL 6, 

condensing operation is required, making these products increasingly complex. At these levels, 

manufacturers suggested the size of the gas hearth DHE market covered by today’s rulemaking 

could be impacted due possible consumer reactions, which could also put additional pressure on 

domestic firms to consolidate or exit the market. A smaller market could reduce employment if 

the higher labor content required to manufacturer standards-compliant products is more than 

offset by a decline industry sales. 

vi. Gas-Fired Pool Heater Employment Impacts 

Using the GRIM, DOE estimates there would be 644 gas-fired pool heater production 

workers in the U.S. in 2013 in the absence of amended energy conservation standards. Using the 

Census Bureau data and interviews with manufacturers, DOE estimates that approximately 100 

346
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

percent of gas-fired pool heaters sold in the United States are manufactured domestically. Table 

V.34 shows the impacts of potential amended energy conservations standards on U.S. production 

workers in the gas-fired pool heater industry. 

Table V.34 Potential Changes in the Total Number of Domestic Pool Heater Production 

Workers in 2013 

Trial Standard Level 

Baseline 1 2 3 4 5 6 

Total Number of 

Domestic Production 

Workers in 2013 

(without changes in 

production locations) 

644 657 678 710 737 807 975 

Potential Changes in 

Domestic Production 

Workers in 2013* 

- (644) ­

13 

(644) ­

34 

(644) ­

66 

(644) ­

93 

(644) ­

163 

(644) ­

331 

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers. 

DOE expects no significant direct employment impacts on gas-fired pool heater 

manufacturers for TSL 1 through TSL 4 because the technology options at these TSLs involve 

mostly component changes that do not greatly alter the labor content. For example, the 

technology changes for existing products that meet TSL 3 and TSL 4 involve power venting. 

While this technology would alter the installation of much of the installed base and cause 

manufacturers to increase the production of low-volume products, the basic assembly of the pool 

heaters at the point of manufacture is not substantially changed. Therefore, it is unlikely that 

employment levels would be substantially impacted. However, the existing products in the 

market at TSL 5 are near-condensing products and products at TSL 6 use fully condensing 

technology. The higher-efficiency products are typically more complex and take longer to 

assemble, resulting in an increase in employment if shipments levels are maintained. However, 

manufacturers have stated that the higher prices of higher-efficiency products could result in a 

smaller number of annual shipments, which could cause a corresponding reduction in industry 

347
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

employment as well. At TSL 5 and TSL 6, manufacturers are particularly concerned that the 

closer their products become to condensing technology, the higher the product costs would be 

and the more likely it is that amended energy conservation standards would cause a drop in 

industry-wide shipments. If manufacturers experienced a drop in total shipments, the domestic 

employment in the gas-fired pool heater industry could be negatively affected. 

e. Impacts on Manufacturing Capacity 

i. Residential Gas-Fired and Electric Storage Water Heaters 

Amended energy conservation standards could cause short-term capacity constraints for 

gas-fired storage water heaters at TSL 7 and cause short-term capacity constraints for electric 

storage water heaters at TSL 6 and TSL 7. However, for the remaining TSLs, manufacturers 

could maintain capacity levels and continue to meet market demand under amended energy 

conservation standards. 

DOE research suggests for the efficiency requirements for gas-fired storage water heaters 

could be met by adding more foam insulation to all volume sizes at TSL 1 through TSL 4 and 

TSL 6. These changes would not require gas-fired storage water heater manufacturers to greatly 

alter their existing production facilities or equipment and would not cause capacity constraints. 

DOE also acknowledges that TSL 5 could also result in a constrained market for large volume 

sizes if manufacturers do not make the required investments to offer gas-fired condensing water 

heaters at relatively low shipment volumes. DOE also recognizes there will likely be significant 

impacts on manufacturers at any TSL that effectively requires gas-fired condensing. 

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EE-2006-STD-0129 COMMENT 56.1
The dramatically different technology required at the max-tech level for gas-fired storage 

water heaters introduces problems that could cause short-term capacity constraints in the market. 

At TSL 7 (the max-tech level), all manufacturers would need to redesign all of their existing 

products because none currently offers residential water heaters that use condensing technology. 

Manufacturers would also have to retrain their installers and servicers to handle technology that 

varies tremendously from the majority of exiting products on the market. The fundamental 

fabrication and production equipment of gas-fired storage water heaters are substantially 

different for water heaters that use condensing technology. Equipment to manufacturer required 

heat exchangers and new tank designs would be required, as well as substantial changes to all 

subassembly and main assembly lines to handle the new technology. DOE estimates that 

manufacturers would incur over $110 million in capital conversion costs to make these plant 

modifications if all residential gas-fired storage water heaters required condensing technology. 

For comparison, the base-case estimate for the net PPE for gas-fired storage water heaters is 

approximately $166 million. This comparison of the estimate of current net PPE to the required 

capital conversion costs indicates the plant and equipment changes require manufacturers to 

almost completely modify or replace a substantial portion of their existing production assets for 

gas-fired storage water heaters. DOE also estimates that these changes would strand 

approximately $26 million of existing assists, mainly the book value of tank and coil equipment 

that can no longer be used with condensing technology. In addition, manufacturers believe that 

there could be problems with quality control to manufacture substantially more complex 

products on high-speed production lines. These problems could further increase the capital costs 

required if the line rates required manufacturers to install additional production lines. 

Manufacturers indicated that these potential problems and the extremely substantial changes that 

are required to their facilities could cause a constrained market until the production equipment is 

349
 

EE-2006-STD-0129 COMMENT 56.1
 

 

installed and the high-speed manufacturing of what are currently low-volume commercial 

products can be expanded to meet the demand of the gas-fired residential water heater market. 

Although these changes are substantial, DOE believes that the 5-year period before compliance 

with the standard is required would allow manufacturers sufficient time to make the necessary 

changes to meet demand for those products. The full range of products may not be available 

initially, however, since manufacturers would likely prioritize high-volume product lines ahead 

of lower-volume product lines. 

For electric storage water heaters, TSL 1 through TSL 3 would require only minor 

changes to existing products to increase the tank insulation thickness. At TSL 4, more substantial 

plant modifications would be required because changes to the insulation thickness would require 

more foaming stations and additional production lines due to a lower throughput. However, 

electric storage water heater manufacturers would be able to maintain manufacturing capacity 

levels and continue to meet market demand under amended energy conservation standards for 

these TSLs. These TSLs do not require prohibitively costly or complex changes to existing 

facilities or most products on the market today. 

DOE also acknowledges that TSL 5 could also result in a constrained market for large 

volume sizes if manufacturers do not make the required investments to offer electric heat pump 

water heaters at relatively low shipment volumes. DOE also recognizes there will likely be 

significant impacts on manufacturers at any TSL that effectively requires electric heat pump 

water heaters. 

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EE-2006-STD-0129 COMMENT 56.1
Electric storage water heater manufacturers indicated that there could be potential 

capacity impacts at TSL 6 or TSL 7, which would effectively require heat pump technology. 

However, manufacturers of electric storage water heaters indicated that significant changes to 

production facilities would be required if amended energy conservation standards effectively 

mandated heat pump water heaters for all rated volume sizes (TSL 6 and TSL 7). Several 

manufacturers stated that they could move all or part of their production to Mexico to take 

advantage of lower labor costs if more complex heat pump water heaters were required. DOE 

believes manufacturers would likely source the heat pump module initially if they were required 

to exclusively manufacture heat pump water heaters. However, such a dramatic increase in the 

demand for heat pump modules could strain suppliers, especially in the short-term. Finally, 

manufacturers also stated that they have very little experience with manufacturing heat pump 

water heaters. Manufacturers indicated that the changes to their facilities (including potential 

plant sourcing decisions) could cause a constrained market until the production equipment is 

installed and any problems with high-speed manufacturing are resolved. As discussed in section 

IV.B.3.b, DOE acknowledges there could be issues with converting entire production lines to 

manufacture heat pump water heaters before the compliance date of this standard. Given the 

five-year delay in the compliance date with the amended standard from the issuance from the 

final rule, and the fact that many manufacturers are already developing heat pump water heaters, 

DOE believes manufacturers may be able to convert all their product lines before the compliance 

date of an amended energy conservation standard. 

ii. Residential Oil-Fired Storage Water Heaters 

While amended energy conservation standards could impact current market shares in the 

oil-fired storage water heater market, it is unlikely that standards would result in a constrained 

351
 

EE-2006-STD-0129 COMMENT 56.1
 

 

market. For oil-fired storage water heaters, the fundamental fabrication and assembly equipment 

would not be expected to change significantly in order to comply with TSL 1 through TSL 6. 

While DOE research suggests that products that meet TSL 1 through TSL 6 require relatively 

minor changes to the insulation material or thickness, the product conversion costs necessary at 

these TSLs could cause at least one manufacturer with significant market share to exit the 

residential oil-fired storage water heater market due to the low total shipment volumes. At any 

efficiency level that would likely require a multi-flue heat exchanger (i.e., TSL 7), all but one 

manufacturer would need to make a significant and costly redesign of existing residential oilfired product lines and related manufacturing facilities. These substantial changes could cause 

manufacturers to exit the residential oil-fired storage water heater market. However, even TSL 7 

is unlikely to result in a constrained market even if any manufacturer exited the oil-fired 

residential water heater market. One residential oil-fired storage water heater manufacturer with 

significant market share has products that meet the max-tech level. Due to the low shipment 

volumes of oil-fired storage water heaters, this manufacturer could meet the total industry 

demand and industry-wide capacity would not be impacted. 

iii. Gas-Fired Instantaneous Water Heaters 

There may be short-term capacity constraints for gas-fired instantaneous water heaters at 

TSL 7. DOE research suggests that all gas-fired instantaneous water heaters are currently 

imported. If the amended energy conservation standards required more-efficient products than 

those currently offered, foreign manufacturers and parent companies would have to decide 

whether the relatively small market for gas-fired instantaneous water heaters in the United States 

could justify the required investments. DOE expects that TSL 1 through TSL 6 would be 

unlikely to disrupt supply to the United States because of the number of existing product lines 

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EE-2006-STD-0129 COMMENT 56.1
 

that manufacturers could offer without substantial product develop would not greatly change at 

the required efficiencies. The number of existing product lines on the market drops substantially 

at TSL 7. There could be capacity constraints in response to amended energy conservation 

standards at TSL 7 if manufacturers that do not have compliant products chose not to develop 

them for the United States market due to the current size of the market. 

iv. Traditional Direct Heating Equipment 

Amended energy conservation standards could lead to a constrained traditional DHE 

market. DOE does not expect that traditional DHE manufacturers would need to substantially 

modify existing facilities in response to amended energy conservation standards at TSL 1 or TSL 

2. However, at TSL 3 though TSL 6, some manufacturers would face complete product redesigns 

for either gas wall fan or gas room DHE. A complete redesign would entail significant product 

development, tooling, certification, and testing costs. Some manufacturers indicated that low 

shipment volumes would make these costs unjustifiable for many product lines, thereby leading 

to the discontinuation of those lines. Small businesses with less access to capital would be even 

more likely to face this problem than higher-volume, more diversified competitors, possibly 

resulting in further industry consolidation. Pressure that forced manufacturers to consolidate or 

exit the market could also strain the remaining manufacturers’ capacity to increase production to 

meet industry demand. However at TSL 3, DOE believes that manufacturers have enough 

existing products in multiple product classes that they could selectively upgrade enough product 

lines to meet industry demand and remain in business. However, DOE believes setting an 

amended energy conservation standard above TSL 3 could lead to manufacturing capacity 

problems for certain product classes if manufacturers cannot make the tooling changes in time to 

meet the standard, if manufacturers do not have the resources to develop products that meet the 

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EE-2006-STD-0129 COMMENT 56.1
 

 

required efficiencies, or if manufacturers discontinue product lines rather than invest an amount 

equal to the required conversion costs. 

v. Gas Hearth Direct Heating Equipment 

Gas hearth DHE manufacturers did not indicate that amended energy conservation 

standards would lead to a constrained market. Rather, such manufacturers are concerned that 

more stringent energy conservation standards could exert additional pressures on companies to 

consolidate or exit the market. Manufacturers predict that unit shipments would decline 

increasingly as the amended energy conservation standard is set closer to max-tech (i.e., TSL 6). 

Manufacturers also indicated that the high capital conversion costs would lead all manufacturers 

to drop product lines or not convert all existing product lines at TSL 4 through TSL 6 because of 

the smaller market for covered gas hearth products that is anticipated in the event of a more 

stringent amended energy conservation standard. The reduction in market demand and the lower 

number of product lines available would likely lead to an overcapacity of covered products 

within the industry, even if multiple lower-volume competitors exit the market. 

vi. Gas-Fired Pool Heaters 

Manufacturers indicated that, while other potentially negative impacts were possible at 

lower TSLs, industry capacity could be impacted at more stringent TSLs. At TSL 1 through TSL 

4, DOE research suggests that manufacturers could retool without causing capacity constraints in 

the market. If DOE were to set amended energy conservation standards at near-condensing or 

condensing level, most gas-fired pool heater manufacturers stated that short-term production 

capacity could be affected. While only TSL 6 requires fully-condensing products, manufacturers 

indicated that adoption of amended standards at TSL 5 and above could cause them to 

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EE-2006-STD-0129 COMMENT 56.1
 

manufacture only fully-condensing products in order to minimize longevity and warranty issues. 

Thus, TSL 5 and TSL 6 would require manufacturers to incur significant product and capital 

conversion costs. Consequently, DOE believes setting an amended energy conservation standard 

at or above TSL 5 could lead to short-term capacity problems if manufacturers cannot make the 

necessary tooling, equipment, and assembly changes in time to meet the standard. 

f. Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. In addition to energy conservation 

standards, other regulations can significantly affect manufacturers’ financial operations. Multiple 

regulations affecting the same manufacturer can strain company-wide resources and can lead 

companies to abandon product lines or markets with lower expected future returns than 

competing products. For these reasons, DOE conducts an analysis of cumulative regulatory 

burden as part of its rulemakings pertaining to appliance efficiency. During previous stages of 

this rulemaking, DOE identified several requirements, in addition to amended energy 

conservation standards for the three types of heating products that manufacturers will face for 

products manufactured three years before and three years after the anticipated compliance date of 

the amended energy conservation standards. 

During interviews and in their written comments, manufacturers stated that the most 

significant of these additional regulations are regional ultra-low-NOX requirements and 

environmental and safety regulations. In response to the preliminary analysis, BWC commented 

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EE-2006-STD-0129 COMMENT 56.1
 

 

that there is a substantial cost increase to comply with ultra-low-NOX requirements. (BWC, No. 

46 at p. 1) Noritz also stated that ultra-low-NOX requirements are the most significant regulation 

that will affect the gas-fired instantaneous water heating industry (Noritz, No. 36 at p. 3). AHRI 

and Rheem stated that gas-fired instantaneous water heater manufacturers will have to comply 

with ultra-low-NOX emissions requirements in 2012. (AHRI, Public Meeting Transcript, No. 

34.4 at p. 134; Rheem, No. 48 at p. 7) 

 Low and ultra-low-NOX regulations for gas-fired water heaters are being implemented 

regionally by air quality management districts, including the South Coast Air Quality 

Management District (SCAQMD), the Bay Area Air Quality Management District (BAAQMD), 

the San Joaquin Valley Unified Air Pollution Control District (the Valley Air District), and the 

Texas Commission on Environmental Equality (TCEQ). The ultra-low-NOX regional standards 

currently in place only cover gas-fired storage water heaters, but manufacturers are concerned 

that these standards could eventually affect additional types of gas-fired equipment. While the 

SCAQMD, the BAAQMD, and the Valley Air District all mandate ultra-low-NOX requirements, 

the TCEQ only has low-NOX requirements. 

DOE accounted for the added cost for manufacturers of gas-fired storage water heaters to 

comply with regional ultra-low NOX requirements (see section IV.C.2). DOE agrees with Noritz, 

AHRI, and Rheem that ultra-low-NOX requirements may affect instantaneous gas water heaters 

beginning in 2012. While the SCAQMD does not distinguish between gas-fired storage and gasfired instantaneous water heaters, the BAAQMD and the Valley Air District have separate ultralow-NOX regulations for natural gas-fired instantaneous water heaters. Although the compliance 

dates of these regulations are pending, DOE is not aware of any ultra-low-NOX instantaneous 

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EE-2006-STD-0129 COMMENT 56.1
 

gas-fired water heaters currently on the market. Consequently, DOE could not create a separate 

cost curve to account for the additional cost of instantaneous water heaters that will meet the 

upcoming ultra-low-NOX emissions requirements. 

There are also existing FVIR and low and ultra-low-NOX requirements for gas-fired 

storage water heaters, ignition source requirements, amended energy conservation standards for 

other products made by heating products manufacturers, State energy conservation standards for 

other products, and international energy conservation standards. The cumulative burden focuses 

on other product-specific Federal requirements with a compliance date three years prior to and 

three years after the anticipated compliance dates of the amended energy conservation standards 

of this rulemaking. However, DOE discusses these and other regulations and includes the full 

details of the cumulative regulatory burden in chapter 12 of the NOPR TSD. 

g. Impacts on Small Businesses 

As discussed in section IV.H.1.c, using average cost assumptions to develop an industry 

cash-flow estimate is not adequate for assessing differential impacts among manufacturer 

subgroups. Small manufacturers, niche equipment manufacturers, and manufacturers exhibiting a 

cost structure substantially different from the industry average could be affected 

disproportionately. DOE used the results of the industry characterization to group manufacturers 

exhibiting similar characteristics. Consequently, the only subgroup DOE identified was small 

manufacturers. 

DOE evaluated the impact of amended energy conservation standards on small 

manufacturers, as defined by SBA. As a result, DOE identified five residential water heater 

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manufacturers, 12 DHE manufacturers, and one small gas-fired pool heater manufacturer that are 

classified as small businesses per the SBA definition. DOE describes the differential impacts on 

these small businesses in section VI.B of today’s notice. For a complete discussion of the 

impacts on small businesses, see chapter 12 of the NOPR TSD. 

3. National Impact Analysis 

a. Significance of Energy Savings 

To estimate the energy savings attributable to potential standards, DOE compared the 

energy consumption of the heating products under the base case (no standards) to anticipated 

energy consumption of these products under each TSL. Table V.35 through Table V.37 present 

DOE’s NES estimates by product type and class for each TSL. Chapter 10 of the NOPR TSD 

describes these estimates in more detail. 

Table V.35 Water Heaters: Cumulative National Energy Savings in Quads 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

Gas-Fired Storage 0.83 1.29 1.29 1.29 1.46 1.29 5.33 

Electric Storage 0.35 0.49 0.90 1.21 2.18 9.05 10.62 

Oil-Fired Storage 0.01 0.01 0.01 0.01 0.01 0.01 0.03 

Gas-Fired Instantaneous 0.08 0.08 0.08 0.08 0.08 0.08 0.87 

TOTAL 1.26 1.88 2.28 2.60 3.74 10.44 16.85 

Table V.36 Direct Heating Equipment: Cumulative National Energy Savings in Quads 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas Wall Fan 0.007 0.01 0.01 0.02 0.01 0.02 

Gas Wall Gravity 0.008 0.02 0.06 0.06 0.10 0.10 

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 

Gas Room 0.002 0.00 0.01 0.01 0.03 0.03 

Gas Hearth 0.136 0.14 0.14 0.30 0.30 0.93 

TOTAL 0.15 0.17 0.22 0.39 0.44 1.08 

Table V.37 Pool Heaters: Cumulative National Energy Savings in Quads 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas-Fired 0.02 0.03 0.08 0.10 0.13 0.28 

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EE-2006-STD-0129 COMMENT 56.1
b. Net Present Value of Consumer Costs and Benefits 

DOE estimated the cumulative NPV to the Nation of total heating product consumer 

costs and savings that would result from particular standard levels. In accordance with the OMB 

Circular A-4, DOE calculated the NPV using both a 7-percent and a 3-percent real discount rate. 

The 7-percent rate is an estimate of the average before-tax rate of return to private capital in the 

U.S. economy, and reflects the returns to real estate and small business capital as well as 

corporate capital. DOE used this discount rate to approximate the opportunity cost of capital in 

the private sector, as OMB analysis has found the average rate of return to capital to be near this 

rate. In addition, DOE used the 3-percent rate to capture the potential effects of amended 

standards on private consumption (e.g., through higher prices for products and reduced purchases 

of energy). This rate represents the rate at which society discounts future consumption flows to 

their present value. This rate can be approximated by the real rate of return on long-term 

government debt (i.e., yield on Treasury notes minus annual rate of change in the Consumer 

Price Index), which has averaged about 3 percent on a pre-tax basis for the last 30 years. 

Table V.38 through Table V.40 show the consumer NPV results for each TSL DOE 

considered for the three types of heating products, using both a 7-percent and a 3-percent 

discount rate. See chapter 10 of the NOPR TSD for more detailed NPV results. 

Table V.38 Cumulative Net Present Value of Consumer Benefits for Water Heaters 

(Impacts for Units Sold from 2015 to 2045) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

 billion 2008 dollars 

Discounted 

at 3% 

Gas-Fired 

Storage 7.58 9.04 9.04 9.04 9.63 9.04 11.27 

Electric Storage 2.19 3.16 4.73 6.02 11.67 31.90 41.94 

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Oil-Fired 

Storage 0.12 0.20 0.28 0.28 0.28 0.28 0.47 

Gas-Fired 

Instantaneous 0.30 0.30 0.30 0.30 0.30 0.30 -5.68 

TOTAL 10.20 12.71 14.36 15.64 21.89 41.52 47.99 

Discounted 

at 7% 

Gas-Fired 

Storage 2.94 3.09 3.09 3.09 3.17 3.09 -1.10 

Electric Storage 0.69 1.03 1.32 1.59 3.35 5.22 8.50 

Oil-Fired 

Storage 0.05 0.09 0.12 0.12 0.12 0.12 0.19 

Gas-Fired 

Instantaneous 0.01 0.01 0.01 0.01 0.01 0.01 -4.84 

TOTAL 3.69 4.20 4.53 4.79 6.64 8.43 2.75 

Table V.39 Cumulative Net Present Value of Consumer Benefits for Direct Heating 

Equipment (Impacts for Units Sold from 2013 to 2043) 

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2008 dollars 

Discounted 

at 3% 

Gas Wall Fan 0.07 0.09 0.11 0.14 0.07 0.14 

Gas Wall Gravity 0.07 0.22 0.52 0.52 0.37 0.37 

Gas Floor 0.0003 0.0003 0.0003 0.0003 0.0003 0.0003 

Gas Room 0.02 0.05 0.08 0.08 0.35 0.35 

Gas Hearth 1.52 1.52 1.52 -1.06 -1.06 -3.49 

TOTAL 1.68 1.87 2.22 -0.33 -0.26 -2.63 

Discounted 

at 7% 

Gas Wall Fan 0.03 0.04 0.04 0.04 0.03 0.04 

Gas Wall Gravity 0.03 0.09 0.20 0.20 0.06 0.06 

Gas Floor 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 

Gas Room 0.01 0.02 0.03 0.03 0.14 0.14 

Gas Hearth 0.64 0.64 0.64 -1.16 -1.16 -3.78 

TOTAL 0.71 0.79 0.91 -0.89 -0.93 -3.54 

Table V.40 Cumulative Net Present Value of Consumer Benefits for Pool Heaters (Impacts 

for Units Sold from 2013 to 2043) 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2008 dollars 

Discounted at 3% 0.16 0.18 0.40 0.25 -1.97 -4.51 

Discounted at 7% 0.08 0.07 0.14 0.03 -1.27 -2.94 

c. Net Present Value of Benefits from Energy Price Impacts 

DOE estimated the cumulative NPV of the economy-wide savings in natural gas 

expenditures during the forecast period due to the projected decline in natural gas prices resulting 

from amended standards on water heaters. DOE calculated the cumulative NPV for the 

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EE-2006-STD-0129 COMMENT 56.1
efficiency levels in each product class corresponding to each TSL using both a 7-percent and a 3­

percent discount rate (Table V.41). (The impact of amended standards for direct heating 

equipment and pool heaters was not estimated for the reasons explained in section IV.F.) See 

chapter 10 of the NOPR TSD for further details. As discussed in section IV.F.2.g, DOE was not 

able to estimate the impact of the considered TSLs on electricity prices. 

Table V.41 Cumulative NPV of the Economy-Wide Savings in Natural Gas Expenditures 

Due to the Projected Decline in Natural Gas Prices Resulting from Amended Standards for 

Water Heaters* 

Discount Rate TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

billion $2008 

3 percent 3.0 4.5 5.1 5.6 7.1 23.6 47.7 

7 percent 1.4 2.2 2.5 2.7 3.4 12.0 24.2 

* Impacts for units sold from 2015 to 2045 

d. Impacts on Employment 

Employment impacts consist of direct and indirect impacts. Direct employment impacts 

are any changes in the number of employees of manufacturers of the appliance products that are 

the subject of this rulemaking, their suppliers, and related service firms. Indirect employment 

impacts are changes in employment in the larger economy that occur due to the shift in 

expenditures and capital investment caused by the purchase and operation of more-efficient 

appliances. The MIA addresses the direct employment impacts that concern manufacturers of the 

three heating products (see section V.B.2 above). 

To estimate the indirect employment impacts of potential amended energy conservation 

standards, DOE used an input/output model of the U.S. economy (see section IV.I)). The 

input/output model results suggest that amended standards would be likely to increase the net 

demand for labor in the economy slightly. Table V.42 presents the estimated net indirect 

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EE-2006-STD-0129 COMMENT 56.1
 

employment impacts from the TSLs that DOE considered for water heaters. The estimated 

impacts from the potential amended standards for DHE and pool heaters would be much smaller. 

(Note that the input/output model DOE uses does not report the quality or wage level of the 

jobs.) See chapter 14 of the NOPR TSD for more detailed results. 

Table V.42 Net Increase in National Indirect Employment Under Water Heater TSLs 

Trial Standard 

Level 

2015 

thousands 

2020 

thousands 

2030 

thousands 

2044 

thousands 

1 -0.17 1.02 2.58 3.32 

2 -0.46 1.20 3.36 4.38 

3 -0.55 1.97 5.27 6.70 

4 -0.62 2.58 6.75 8.49 

5 -0.77 5.63 13.95 17.82 

6 -2.47 18.48 45.72 55.67 

7 -6.98 19.37 54.03 68.11 

While DOE’s analysis suggests that amended standards could increase the net demand for 

labor in the economy, the estimated gains would be very small relative to total national 

employment. Therefore, DOE has tentatively concluded that the considered standard levels 

would be likely to produce employment benefits sufficient to fully offset any adverse impacts on 

employment in the manufacturing industries related to the three types of heating products that are 

the subject of this rulemaking. 

4. Impact on Utility or Performance of Products 

As discussed in section III.D.1.d, DOE has tentatively concluded that none of the 

efficiency levels considered in this notice would reduce the utility or performance of the three 

types of heating products. Furthermore, manufacturers of these products currently offer heating 

products that meet or exceed the proposed standards. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) 

362
 

EE-2006-STD-0129 COMMENT 56.1
 

5. Impact of Any Lessening of Competition 

DOE has also considered any lessening of competition likely to result from amended 

standards. The Attorney General determines the impact, if any, of any lessening of competition 

likely to result from a proposed standard, and transmits its determination to the Secretary, 

together with an analysis of the nature and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) 

and (ii)) 

To assist the Attorney General in making such a determination, DOE has provided DOJ 

with copies of this notice and the TSD for review. DOE will consider DOJ’s comments on the 

proposed rule in preparing the final rule, and DOE will publish and respond to DOJ’s comments 

in that document. 

6. Need of the Nation to Conserve Energy 

Improving the energy efficiency of heating products when economically justified would 

likely improve the security of the Nation’s energy system by reducing overall demand for 

energy. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) Reduced electricity demand may also improve the 

reliability of the electricity system. 

Energy savings from amended standards for heating products could also produce 

environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases 

associated with energy production and the use of fossil fuels at the sites where heating products 

are used. Table V.43 and Table V.44 provide DOE’s estimate of cumulative CO2, NOX, and Hg 

emissions reductions that would be expected to result from the TSLs considered in this 

363
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

rulemaking. In the environmental assessment (chapter 16 of the NOPR TSD), DOE reports the 

estimated annual change in CO2, NOX, and Hg emissions attributable to each TSL. 

For DHE, DOE estimates a very slight increase in Hg emissions under the proposed 

standard. The reason for this result is that the more-efficient products save natural gas, but they 

also use more electricity due to electronic ignition and, for some DHE TSLs, use of a fan. This 

results in higher electricity generation than in the reference case, which leads to higher 

emissions. However, because the increase in electricity that these more efficient products are 

projected to use is comparatively small when compared to the reduction in natural gas usage, 

there will be an overall efficiency gain from the proposed standard. For CO2 and NOX, the higher 

emissions from the power sector would also be canceled out by lower household emissions from 

gas combustion, resulting in a total emissions decrease under the considered TSLs. This is not 

the case for Hg because there are no household Hg emissions to offset. 

As discussed in section IV.K, DOE does not report SO2 emissions reductions from power 

plants because there is uncertainty about the effect of energy conservation standards on the 

overall level of SO2 emissions in the United States due to SO2 emissions caps. DOE also did not 

include NOX emissions reduction from power plants in States subject to CAIR because an energy 

conservation standard would not affect the overall level of NOX emissions in those States due to 

the emissions caps mandated by CAIR. 

Table V.43 Summary of Emissions Reductions Under Water Heater TSLs (cumulative 

throughout forecast period) 

Emission 

Type 

TSL 

1 2 3 4 5 6 7 

CO2 (Mt) 88.7 136.8 146.6 153.8 217.0 346.0 965.5 

NOX (kt) 68.5 106 113 118 165 254 730 

364
 

EE-2006-STD-0129 COMMENT 56.1
Hg (t) 0.11 0.16 0.19 0.20 0.60 2.18 4.43 

Table V.44 Summary of Emissions Reductions Under Direct Heating Equipment and Pool 

Heater TSLs (cumulative throughout forecast period) 

Emission 

Type 

TSL 

1 2 3 4 5 6 

Direct Heating Equipment 

CO2 (Mt) 6.32 7.02 8.52 16.69 18.46 42.97 

NOX (kt) 5.79 6.42 7.74 15.2 16.9 39.6 

Hg (t) (0.02) (0.02) (0.02) (0.00) (0.01) (0.01) 

Pool Heaters 

CO2 (Mt) 0.610 1.05 3.31 4.21 5.74 12.12 

NOX (kt) 0.55 0.94 2.98 3.74 5.10 10.77 

Hg (t) 0.00 0.00 0.01 0.00 0.00 0.00 

DOE estimated the cumulative monetary value of the economic benefits associated with 

CO2 emissions reductions expected to result from amended standards for the three types of 

heating products. As discussed in section IV.K, in considering the potential global benefits 

resulting from reduced CO2 emissions, DOE used values based on a social cost of carbon of 

approximately $5, $10, $20, $34 and $56 per metric ton avoided in 2007 (values expressed in 

2008$). DOE also calculated the domestic benefits based on a value of approximately $1 per 

metric ton avoided in 2007. To monetize the CO2 emissions reductions expected to result from 

amended standards for heating products in 2013-2045, DOE escalated the above values for 2007 

using a three-percent escalation rate. For each of the three types of heating products, DOE 

calculated the cumulative monetary value for each TSL using both a 7-percent and 3-percent 

discount rate (see Table V.45 through Table V.50). 

365
 

EE-2006-STD-0129 COMMENT 56.1
Table V.45 Estimates of the Value of CO2 Emissions Reductions for Water Heaters Under 

Trial Standard Levels Using 7% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 48.0 211 421 800 1,390 2,317 

2 74.1 325 650 1,235 2,145 3,575 

3 79.4 348 697 1,324 2,299 3,832 

4 83.4 366 732 1,390 2,414 4,024 

5 112 492 983 1,869 3,246 5,409 

6 171 749 1,497 2,845 4,941 8,235 

7 487 2,134 4,268 8,110 14,085 23,476 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

Table V.46 Estimates of the Value of CO2 Emissions Reductions for Water Heaters Under 

Trial Standard Levels Using 3% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 110 480 961 1,826 3,171 5,285 

2 169 741 1,482 2,816 4,890 8,151 

3 181 794 1,588 3,017 5,239 8,732 

4 190 833 1,666 3,166 5,499 9,166 

5 265 1,162 2,325 4,417 7,672 12,787 

6 416 1,824 3,648 6,932 12,040 20,066 

7 1,170 5,132 10,263 19,500 33,868 56,447 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

366
 

EE-2006-STD-0129 COMMENT 56.1
Table V.47 Estimates of the Value of CO2 Emissions Reductions for Direct Heating 

Equipment Under Trial Standard Levels Using 7% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 3.69 16.2 32.4 61.5 107 178 

2 4.09 18.0 35.9 68.2 119 198 

3 4.96 21.8 43.6 82.8 144 240 

4 9.78 42.9 85.8 163 283 472 

5 10.8 47.4 94.8 180 313 521 

6 25.2 111 221 420 730 1,216 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

Table V.48 Estimates of the Value of CO2 Emissions Reductions for Direct Heating 

Equipment Under Trial Standard Levels Using 3% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 7.81 34.3 68.5 130 226 377 

2 8.68 38.1 76.1 145 251 419 

3 10.5 46.2 92.4 176 305 508 

4 20.6 90.5 181 344 598 996 

5 22.8 100 200 380 661 1,101 

6 53.1 233 466 886 1,538 2,564 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

Table V.49 Estimates of the Value of CO2 Emissions Reductions for Pool Heaters Under 

Trial Standard Levels Using 7% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 0.37 1.63 3.27 6.21 10.8 18.0 

2 0.64 2.81 5.61 10.7 18.5 30.9 

3 2.02 8.86 17.7 33.7 58.5 97.4 

4 2.55 11.2 22.4 42.5 73. 123 

5 3.47 15.2 30.5 57.9 101 168 

6 7.33 32.8 64.3 122 212 354 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

Table V.50 Estimates of the Value of CO2 Emissions Reductions for Pool Heaters Under 

Trial Standard Levels Using 3% Discount Rate 

Value of Estimated CO2 Emission Reductions (million 2008$)* 

 Domestic Global 

TSL 

CO2 Value 

of $1/metric 

ton CO2 

CO2 

Value of 

$5/metric 

ton CO2 

CO2 

Value of 

$10/metric 

ton CO2 

CO2 

Value of 

$20/metric 

ton CO2 

CO2 

Value of 

$34/metric 

ton CO2 

CO2 

Value of 

$56/metric 

ton CO2 

1 0.75 3.31 6.62 12.6 21.8 36.4 

2 1.30 5.69 11.4 21.6 37.5 62.5 

3 4.09 18.0 35.9 68.2 118 197 

4 5.21 22.8 45.7 86.8 151 251 

5 7.10 31.1 62.2 118 205 342 

6 15.0 65.7 131 250 434 723 

* Unit values are approximate and are based on escalating 2007$ to 2008$ for consistency with other values 

presented in this notice. 

DOE also estimated a range for the cumulative monetary value of the economic benefits 

associated with NOX and Hg emissions reductions anticipated to result from amended standards 

for the three types of heating products under consideration in this rulemaking. Table V.51 

through Table V.54 present the results for NOX emissions reductions. Table V.53 presents the 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

results for Hg emissions reductions for water heaters. The values for Hg emissions reductions for 

direct heating equipment and pool heater TSLs are negligible. 

Table V.51 Estimates of the Value of NOX Emissions Reductions for Water Heaters Under 

Trial Standard Levels 

TSL Value at 

7% Discount Rate 

Million 2008$ 

Value at 

3% Discount Rate 

Million 2008$ 

1 7.44 to 76.4 15.9 to 163 

2 11.5 to 118 24.5 to 252 

3 12.3 to 126 26.2 to 269 

4 12.9 to 132 27.4 to 282 

5 16.4 to 168 36.6 to 377 

6 23.0 to 236 54.1 to 556 

7 69.1 to 710 159 to 1,632 

Table V.52 Estimates of the Value of NOX Emissions Reductions for Direct Heating 

Equipment Under Trial Standard Levels 

TSL Value at 

7% Discount Rate 

Million 2008$ 

Value at 

3% Discount Rate 

Million 2008$ 

1 0.71 to 7.26 1.41 to 14.51 

2 0.78 to 8.04 1.56 to 16.07 

3 0.94 to 9.68 1.89 to 19.39 

4 1.87 to 19.2 3.73 to 38.32 

5 2.07 to 21.3 4.13 to 42.50 

6 4.86 to 50.0 9.67 to 99.45 

Table V.53 Estimates of the Value of NOX Emissions Reductions for Pool Heaters Under 

Trial Standard Levels 

TSL Value at 

7% Discount Rate 

Million 2008$ 

Value at 

3% Discount Rate 

Million 2008$ 

1 0.07 to 0.75 0.14 to 1.43 

2 0.12 to 1.28 0.24 to 2.45 

3 0.39 to 4.05 0.75 to 7.73 

4 0.49 to 5.03 0.94 to 9.66 

5 0.67 to 6.86 1.28 to 13.16 

6 1.41 to 14.49 2.70 to 27.80 

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EE-2006-STD-0129 COMMENT 56.1
 

Table V.54 Estimates of the Value of Mercury Emissions Reductions for Water Heaters 

Under Trial Standard Levels 

TSL 

Value at 

7% Discount Rate 

Million 2008$ 

Value at 

3% Discount Rate 

Million 2008$ 

1 0.03 to 1.20 0.05 to 2.17 

2 0.04 to 1.82 0.07 to 3.30 

3 0.05 to 2.07 0.08 to 3.74 

4 0.05 to 2.25 0.09 to 4.09 

5 0.16 to 6.94 0.28 to 12.53 

6 0.49 to 21.7 0.93 to 41.7 

7 0.99 to 44.1 1.90 to 84.8 

The NPV of the monetized benefits associated with emissions reductions can be viewed 

as a complement to the NPV of the consumer savings calculated for each TSL considered in this 

rulemaking. Table V.55 presents the NPV values for water heaters that would result if DOE were 

to add the low- and high-end estimates of the potential benefits resulting from reduced CO2, NOX 

and Hg emissions to the NPV of consumer savings calculated for each TSL considered in this 

rulemaking, at both a 7- and 3-percent discount rate. Table V.56 presents the NPV values for 

DHE that would result if DOE were to add the low- and high-end estimates of the potential 

global benefits resulting from reduced CO2 emissions to the NPV of consumer savings calculated 

for each TSL considered in this rulemaking, at both a 7- and 3-percent discount rate. Table V.57 

presents the same NPV values for pool heaters. For CO2, only the low and high global benefit 

values are used for these tables ($5 and $56 in 2008$). 

Although adding the value of consumer savings to the values of emission reductions 

provides a valuable perspective, please note the following: 1) the national consumer savings are 

domestic U.S. consumer monetary savings found in market transactions, while the values of 

emission reductions are based on ranges of estimates of imputed marginal social costs, which, in 

the case of CO2, are meant to reflect global benefits; and 2) the assessments of consumer savings 

370
 

EE-2006-STD-0129 COMMENT 56.1
and emission-related benefits are performed with different computer models, leading to different 

time frames for the analyses. For water heaters, for example, the present value of national 

consumer savings is measured for the period 2015–2065 (30 years from 2015 to 2045, plus the 

longest lifetime of the equipment shipped in the 30th year). However, the time frames of the 

benefits associated with the emission reductions differ. For example, the value of CO2 emission 

reductions is meant to reflect the present value of all future climate-related impacts, even those 

beyond 2065. 

DOE seeks comment on its presentation of NPV values and on the consideration of GHG 

emissions in future energy conservation standards rulemakings, including alternative 

methodological approaches to including GHG emissions in its analysis. More specifically, DOE 

seeks comment on both how it integrates monetized GHG emissions or Social Cost of Carbon 

values, as well as other monetized benefits or costs, into its analysis and models, and also on 

suggested alternatives to the current approach. 

371
 

EE-2006-STD-0129 COMMENT 56.1
 

Table V.55 Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End 

Global Monetized Benefits from CO2, NOx, and Hg Emissions Reductions at All TSLs for 

Water Heaters at 3- and 7-Percent Discount Rates 

TSL 

CO2 Value of $5/metric ton 

CO2* and Low Values for 

NOx and Hg** 

billion 2008$ 

CO2 Value of $56/metric 

ton CO2* and High Values 

for NOx and Hg*** 

billion 2008$ 

7-percent 

discount rate 

3-percent 

discount 

rate 

7-percent 

discount rate 

3-percent 

discount rate 

1 3.90 10.7 6.08 15.6 

2 4.54 13.5 7.90 21.1 

3 4.89 15.2 8.49 23.4 

4 5.17 16.5 8.95 25.1 

5 7.14 23.1 12.2 35.1 

6 9.20 43.4 16.9 62.2 

7 4.95 53.3 27.0 106 

* These values per ton represent the global negative externalities of CO2. 

** Low Value corresponds to a value of $442 per ton of NOx emissions and $0.745 million per ton of Hg emissions. 

*** High Value corresponds to a value of $4,540 per ton of NOx emissions and $33.3 million per ton of Hg
 

emissions. 

Table V.56 Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End 

Global Monetized Benefits from CO2, NOx, and Hg Emissions Reductions at All TSLs for 

DHE at 3- and 7-Percent Discount Rates 

TSL 

CO2 Value of $5/metric ton CO2 * 

and Low Values for NOx and Hg** 

billion 2008$ 

CO2 Value of $56/metric ton CO2 * 

and High Values for NOx and 

Hg*** 

billion 2008$ 

7-percent 

discount rate 

3-percent 

discount rate 

7-percent 

discount rate 

3-percent 

discount rate 

1 0.722 1.72 0.890 2.07 

2 0.804 1.91 0.991 2.31 

3 0.938 2.27 1.16 2.75 

4 (0.840) (0.233) (0.394) 0.707 

5 (0.855) (0.156) (0.392) 0.884 

6 (3.42) (2.38) (2.27) 0.038 

* These values per ton represent the global negative externalities of CO2. 

** Low Value corresponds to a value of $442 per ton of NOx emissions and $0.745 million per ton of Hg emissions. 

*** High Value corresponds to a value of $4,540 per ton of NOx emissions and $33.3 million per ton of Hg
 

emissions. 

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EE-2006-STD-0129 COMMENT 56.1
Table V.57 Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End 

Monetized Benefits from CO2, NOx, and Hg Emissions Reductions at All TSLs for Pool 

Heaters at 3- and 7-Percent Discount Rates 

TSL 

CO2 Value of $5/metric ton 

CO2* and Low Values for 

NOx and Hg** 

billion 2008$ 

CO2 Value of $56/metric 

ton CO2* and High Values 

for NOx and Hg*** 

billion 2008$ 

7-percent 

discount rate 

3-percent 

discount 

rate 

7-percent 

discount rate 

3-percent 

discount rate 

1 0.077 0.019 0.094 0.053 

2 0.078 0.033 0.107 0.092 

3 0.147 0.100 0.239 0.287 

4 0.044 0.121 0.161 0.358 

5 (1.25) 0.166 (1.09) 0.489 

6 (2.90) 0.353 (2.57) 1.03 

* These values per ton represent the global negative externalities of CO2. 

** Low Value corresponds to a value of $442 per ton of NOx emissions and $0.745 million per ton of Hg emissions. 

*** High Value corresponds to a value of $4,540 per ton of NOx emissions and $33.3 million per ton of Hg
 

emissions. 

Table V.58 Estimates of Adding NPV of Consumer Savings to NPV of Low- and High-End 

Monetized Benefits from COx Emissions Reductions at All TSLs for Water Heaters, DHE 

and Pool Heaters at 3- and 7-Percent Discount Rates 

TSL 

CO2 Value of $5/metric ton CO2 * 

and Low Values for NOx and Hg** 

billion 2008$ 

CO2 Value of $56/metric ton CO2 * 

and High Values for NOx and 

Hg*** 

billion 2008$ 

7-percent 

discount rate 

3-percent 

discount rate 

7-percent 

discount rate 

3-percent 

discount rate 

1 4.69 12.4 2,517 5,710 

2 5.41 15.4 3,808 8,647 

3 5.96 17.5 4,174 9,455 

4 4.36 16.4 4,622 10,428 

5 4.99 23.1 6,102 14,252 

6 2.85 41.3 9,807 23,392 

7 1.45 51.1 25,042 59,779 

* These values per ton represent the global negative externalities of CO2. 

** Low Value corresponds to a value of $442 per ton of NOx emissions and $0.745 million per ton of Hg emissions. 

*** High Value corresponds to a value of $4,540 per ton of NOx emissions and $33.3 million per ton of Hg
 

emissions. 

373
 

EE-2006-STD-0129 COMMENT 56.1
 

7. Other Factors 

In determining whether a standard is economically justified, the Secretary of Energy may 

consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 

6295(o)(2)(B)(i)(VII)) The Secretary has decided that the LCC impacts on identifiable groups of 

consumers, such as senior citizens and residents of multi-family housing who may be 

disproportionately affected by any national energy conservation standard level, is a relevant 

factor. The impacts on the identified consumer subgroups are described in section V.B.1 above. 

DOE also believes that uncertainties associated with the heat pump water heater market 

(e.g., product availability) are relevant to consider. These uncertainties are discussed in section 

V.C below. 

C. Proposed Standards 

When considering proposed standards, DOE recognizes that EPCA specifies that any new 

or amended energy conservation standard for any type (or class) of covered product shall be 

designed to achieve the maximum improvement in energy efficiency that the Secretary 

determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) In 

determining whether a standard is economically justified, the Secretary must determine whether 

the benefits of the standard exceed its burdens to the greatest extent practicable, in light of the 

seven statutory factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i)) The new or amended 

standard must also “result in significant conservation of energy.” (42 U.S.C. 6295(o)(3)(B)) 

DOE considered the impacts of standards at each trial standard level, beginning with the 

maximum technologically feasible level, to determine whether each level was economically 

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EE-2006-STD-0129 COMMENT 56.1
 

 

justified. If the max-tech level is not justified, DOE then considers the next most efficient level 

and undertakes the same evaluation until it reached the highest level that is both technologically 

feasible and economically justified, and saves a significant amount of energy. 

To aid the reader as DOE discusses the benefits and/or burdens of each trial standard 

level, the tables in the following sections present summaries of the results of DOE’s quantitative 

analysis at each TSL for each of the three heating products based on the methodology discussed 

above. Additional quantitative results (e.g., the cumulative NPV to natural gas consumers of the 

economy-wide savings in natural gas expenditures during the forecast period due to the projected 

decline in natural gas prices resulting from amended standards on the three types of heating 

products) are provided in section V.B.3. 

In addition to the quantitative results, DOE also considers other burdens and benefits that 

affect economic justification. These include the LCC impacts on identifiable subgroups of 

consumers, such as seniors and residents of multi-family housing, who may be 

disproportionately affected by any national energy conservation standard level, and the 

uncertainties associated with the heat pump water heater market. 

DOE also notes that the economics literature provides a wide-ranging discussion of how 

consumers trade-off upfront costs and energy savings in the absence of government intervention. 

Much of this literature attempts to explain why consumers appear to undervalue energy 

efficiency improvements. This undervaluation suggests that regulation that promotes energy 

efficiency can produce significant net private gains (as well as producing social gains by, for 

example, reducing pollution). There is evidence that consumers undervalue future energy savings 

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as a result of (1) a lack of information, (2) a lack of sufficient savings to warrant delaying or 

altering purchases (e.g. an inefficient ventilation fan in a new building or the delayed 

replacement of a water pump), (3) inconsistent (e.g. excessive short-term) weighting of future 

energy cost savings relative to available returns on other investments, (4) computational or other 

difficulties associated with the evaluation of relevant tradeoffs, and (5) a divergence in incentives 

(e.g. renter versus owner; builder v. purchaser). Other literature indicates that with less than 

perfect foresight and a high degree of uncertainty about the future, consumers may tradeoff these 

types of investments at a higher than expected rate between current consumption and uncertain 

future energy cost savings. While DOE is not prepared at present to provide a fuller quantifiable 

framework for this discussion, DOE seeks comments on how to assess these possibilities. 

1. Water Heaters 

Table V.59 presents a summary of the impacts for each water heater TSL. 

Table V.59 Summary of Results for Water Heaters 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

National Energy Savings (quads) 1.26 1.88 2.28 2.60 3.74 10.44 16.85 

 3% discount rate 0.67 0.99 1.21 1.38 1.99 5.57 8.98 

 7% discount rate 0.32 0.47 0.58 0.66 0.96 2.71 0.32 

NPV of Consumer Benefits (2008$ billion) 

3% discount rate 10.20 12.71 14.36 15.64 21.89 41.52 47.99 

7% discount rate 3.69 4.20 4.53 4.79 6.64 8.43 2.75 

Industry Impacts 

Gas-Fired and Electric Storage 

Industry NPV (2008$ 

million) 

(4) – (12) (5) – (31) (5) – (35) (3) – (79) (21) – 

(130) 

(2) – 

(306) 

63 – 

(538) 

Industry NPV (% change) (0.5) – 

(1.5) 

(0.6) – 

(3.6) 

(0.6) – 

(4.2) 

(0.4) – 

(9.4) 

(2.5) – 

(15.4) 

(0.2) – 

(36.3) 

7.5­

(63.8) 

Oil-Fired Storage 

Industry NPV (2008$ 

million) 

(0.2) – 

(0.3) 

(0.2) – 

(0.3) 

(0.2) – 

(0.4) 

(0.2) – 

(0.4) 

(0.2) – 

(0.4) 

(0.2) – 

(0.4) 

(1.3) – 

(3.5) 

Industry NPV (% change) (1.9) – 

(3.9) 

(1.8) – 

(3.6) 

(2.0) – 

(4.3) 

(2.0) – 

(4.3) 

(2.0) – 

(4.3) 

(2.0) – 

(4.3) 

(14.8) – 

(39.9) 

Gas-Fired Instantaneous 

Industry NPV (2008$ 

million) 

1.2 – 

(1.8) 

1.2 – 

(1.8) 

1.2 – 

(1.8) 

1.2 – 

(1.8) 

1.2 – 

(1.8) 

1.2 – 

(1.8) 

80.3 – 

(65.9) 

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Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

Industry NPV (% change) 0.2 - (0.3) 0.2 - (0.3) 0.2 - (0.3) 0.2 - (0.3) 0.2 ­

(0.3) 

0.2 ­

(0.3) 

13.3 – 

(10.9) 

Cumulative Emissions Reduction 

CO2 (Mt) 88.7 137 147 154 217 346 965 

NOX (kt) 68.5 106 113 118 165 254 730 

Hg (t) 0.11 0.16 0.19 0.20 0.60 2.18 4.43 

Value of Cumulative Emissions Reduction (2008$ million) ††

 CO2 – 3% discount rate 

 CO2 – 7% discount rate 

480 to 

5,285 

211 to 

2,317 

741 to 

8,151 

325 to 

3,575 

794 to 

8,732 

348 to 

3,832 

833 to 

9,166 

366 to 

4,024 

1,162 to 

12,787 

492 to 

5,409 

1,824 to 

20,066 

749 to 

8,235 

5,132 to 

56,447 

2,134 to 

23,476 

NOX – 3% discount rate 

NOX – 7% discount rate 

16 to 163 

7 to 76 

24 to 252 

11 to 118 

26 to 269 

12 to 126 

27 to 282 

13 to 132 

37 to 

377 

16 to 

168 

54.1 to 

556 

23.0 to 

236 

159 to 

1,632 

69 to 

710 

 Hg – 3% discount rate 

 Hg – 7% discount rate 

0.05 to 

2.2 

0.03 to 

1.2 

0.07 to 

3.3 

0.04 to 

1.8 

0.08 to 

3.7 

0.05 to 

2.1 

0.09 to 

4.1 

0.05 to 

2.2 

0.28 to 

12.53 

0.16 to 

6.94 

0.93 to 

41.7 

0.49 to 

21.7 

1.90 to 

84.8 

0.99 to 

44.1 

Mean LCC Savings* (2008$) 

Gas-Fired Storage 69 68 68 68 78 68 (55) 

Electric Storage 16 23 32 39 96 224 273 

Oil-Fired Storage 171 288 395 395 395 395 655 

Gas-Fired Instantaneous 0 0 0 0 0 0 (307) 

Median PBP (years) 

Gas-Fired Storage 1.4 2.7 2.7 2.7 3.0 2.7 14.1 

Electric Storage 2.8 3.0 4.5 5.8 5.9 8.3 8.2 

Oil-Fired Storage 0.7 0.4 0.5 0.5 0.5 0.5 1.4 

Gas-Fired Instantaneous 23.5 23.5 23.5 23.5 23.5 23.5 39.5 

Distribution of Consumer LCC Impacts 

 Gas-Fired Storage 

Net Cost (%) 9 15 15 15 16 15 62 

No Impact (%) 22 17 17 17 16 17 1 

Net Benefit (%) 69 68 68 68 68 68 36 

 Electric Storage 

Net Cost (%) 10 11 20 25 25 45 45 

No Impact (%) 32 29 14 10 10 5 1 

Net Benefit (%) 59 60 66 65 65 50 54 

 Oil-Fired Storage 

Net Cost (%) 0 0 0 0 0 0 0 

No Impact (%) 69 52 45 45 45 45 7 

Net Benefit (%) 31 48 55 55 55 55 93 

 Gas-Fired Instantaneous 

Net Cost (%) 11 11 11 11 11 11 83 

No Impact (%) 85 85 85 85 85 85 6 

Net Benefit (%) 4 4 4 4 4 4 12 

Generation Capacity Change (GW) † (0.129) (0.195) (0.221) (0.242) (0.956) (2.59) (5.28) 

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Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 

Employment Impacts 

Total Potential Changes in Domestic Production Workers in 2015 

Gas-Fired and Electric 

Storage 

(3,690) ­

68 

(3,690) ­

152 

(3,690) ­

191 

(3,690) ­

287 

(3,690) 

- 706 

(3,690) 

- 4,078 

(3,690) 

- 6,133 

Oil-Fired Storage (38) - (1) (38) - 2 (38) - (1) (38) - (1) (38) ­

(1) 

(38) ­

(1) (38) - 9 

Gas-Fired Instantaneous Not Applicable**

 Indirect domestic jobs (thousands) † 3.32 4.38 6.70 8.49 17.82 55.67 68.11 

Note: Parentheses indicate negative (-) values. 

* For LCCs, a negative value means an increase in LCC by the amount indicated. 

** The industry for gas-fired instantaneous water heaters is international. 

†

 Changes in 2044 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced 

CO2 emissions. 

DOE first considered TSL 7, which represents the max-tech efficiency levels for all four 

product classes. TSL 7 would save 16.85 quads of energy, an amount DOE considers significant. 

TSL 7 would provide a NPV of consumer benefit of $2.75 billion, using a discount rate of 7 

percent, and $48.0 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 7 are 965 Mt of CO2, 730 kt of NOX, and 

4.43 t of Hg. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 7 

is $2.13 billion to $23.48 billion, using a discount rate of 7 percent, and $5.13 to $56.45 billion, 

using a discount rate of 3 percent. Total electricity generating capacity in 2044 is estimated to 

decrease by 5.28 gigawatts (GW) under TSL 7. 

At TSL 7, DOE projects that the average LCC impact for consumers is a loss of $55 for 

gas-fired storage water heaters, a gain of $273 for electric storage water heaters, a gain of $655 

for oil-fired storage water heaters, and a loss of $307 for gas-fired instantaneous water heaters. 

The median payback period is 14.1 years for gas-fired storage water heaters, 8.2 years for 

electric storage water heaters, 1.4 years for oil-fired storage water heaters, and 39.5 years for 

gas-fired instantaneous water heaters (which is substantially longer than the mean lifetime of the 

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product). At TSL 7, the fraction of consumers experiencing an LCC benefit is 36 percent for gasfired storage water heaters, 54 percent for electric storage water heaters, 93 percent for oil-fired 

storage water heaters, and 12 percent for gas-fired instantaneous water heaters. The fraction of 

consumers experiencing an LCC cost is 62 percent for gas-fired storage water heaters, 45 percent 

for electric storage water heaters, 0 percent for oil-fired storage water heaters, and 83 percent for 

gas-fired instantaneous water heaters. 

At TSL 7, the projected change in the INPV is estimated to decrease up to $538 million 

for gas-fired and electric storage water heaters, a decrease of up to $3.5 million for residential 

oil-fired storage water heaters, and a decrease of up to $66 million for gas-fired instantaneous 

water waters, in 2008$. For gas and electric storage water heaters, the impacts are driven 

primarily by the assumptions regarding the ability for manufacturers to produce products at these 

efficiency levels in the volumes necessary to serve the entire market. Manufacturers would need 

to redesign almost all of their products at TSL 7, which would force manufacturers to incur 

significant product and capital conversion costs. Some loss in product utility may also occur for 

units that are presently installed in space-constrained applications because condensing and heat 

pump technologies would typically cause water heaters to have a larger footprint. At TSL 7, 

DOE recognizes the risk of very large negative impacts if manufacturers’ expectations about 

reduced profit margins are realized. In particular, if the high end of the range of impacts is 

reached as DOE expects, TSL 7 could result in a net loss of 63.8 percent in INPV for gas-fired 

and electric storage water heaters, a net loss of 39.9 percent in INPV for oil-fired storage water 

heaters, and a net loss of 10.9 percent in INPV for gas-fired instantaneous water heaters. 

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At TSL 7, the average LCC savings are lower for all of the considered consumer 

subgroups than for the full household sample for electric and gas-fired storage water heaters. In 

the case of electric storage water heaters, the multi-family subgroup would experience an 

average negative LCC savings of $357 (i.e., the average LCC would increase), and three-fourths 

of the households would experience a net cost. For the other subgroups, the fraction of 

households that would experience a net cost is close to or just above 50 percent, which is slightly 

higher than for the full household sample. The impact on the multi-family subgroup is primarily 

due to the lower hot water use per family among these households. 

For gas-fired storage water heaters at TSL 7, condensing operation would be required. 

DOE has several concerns related to the condensing gas-fired storage water heater market. At the 

time of the NOPR analysis, there were no condensing gas-fired storage water heaters available to 

residential consumers in the United States. DOE is concerned about the ability of manufacturers 

to convert all product lines to manufacture condensing gas-fired storage water heaters in the 

volumes needed by the compliance date of the standard, because the manufacturers’ ability to 

afford the necessary conversion costs is uncertain. In addition, uncertainties exist about whether 

manufacturers will be able to train enough installers and servicers of condensing gas-fired water 

heaters to serve the relevant market by the compliance date of the standard. As with electric 

storage heat pump water heaters, DOE is concerned that a typical installer or repair person will 

not have the knowledge required to troubleshoot or repair condensing gas-fired storage water 

heaters since they are more complex than traditional gas-fired storage water heaters. It is unclear 

whether reliable installation and servicing could be achieved by the effective date for compliance 

with the standard. 

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TSL 7 also includes an efficiency level for electric storage water heaters that will require 

the use of heat pump technology. The substantial average savings for customers estimated by 

DOE’s analysis for TSL 7 are primarily driven by the results for heat pump water heaters. 

However, DOE has concerns about issues with the current heat pump water heater market that 

may prevent heat pump technology from being ready for full scale implementation. DOE fully 

discusses these concerns and seeks comments from interested parties on a variety of issues 

associated with heat pump water heaters in its discussion of the benefits and burdens of TSL 6, 

below. 

The Secretary tentatively concludes that at TSL 7, the benefits of energy savings, positive 

NPV of consumer benefits, generating capacity reductions, and emission reductions would be 

outweighed by the economic burden on a significant fraction of consumers due to the large 

increases in first costs associated with electric heat pump water heaters and gas-fired condensing 

water heaters, the disproportionate impacts to consumers in multi-family housing, the large 

capital conversion costs that could result in a large reduction in INPV for the manufacturers, as 

well as the uncertainty associated with providing products at the max-tech level on a scale 

necessary to serve the entire market. Consequently, the Secretary has tentatively concluded that 

TSL 7 is not economically justified. 

Next, DOE considered TSL 6. The efficiency levels in TSL 6 include the ENERGY 

STAR program level for electric storage water heaters, which requires heat pump water heaters. 

TSL 6 would save 10.4 quads of energy, an amount DOE considers significant. TSL 6 would 

increase consumer NPV by $8.4 billion, using a discount rate of 7 percent, and increase the NPV 

by $41.5 billion, using a discount rate of 3 percent. 

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EE-2006-STD-0129 COMMENT 56.1
The cumulative emissions reductions at TSL 6 are 346 Mt of CO2, 254 kt of NOX, and 

2.18 t of Hg. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 6 

is $749 billion to $8.235 billion, using a discount rate of 7 percent, and $1.824 billion to $20.066 

billion, using a discount rate of 3 percent. Total generating capacity in 2044 is estimated to 

decrease by 2.59 GW under TSL 6. 

At TSL 6, DOE projects that the average LCC impact is a gain of $68 for gas-fired 

storage water heaters, a gain of $224 for electric storage water heaters, a gain of $395 for oilfired storage water heaters, and no change for gas-fired instantaneous water heaters. The median 

payback period is 2.7 years for gas-fired storage water heaters, 8.3 years for electric storage 

water heaters, 0.5 years for oil-fired storage water heaters, and 23.5 years for gas-fired 

instantaneous water heaters (which is longer than the mean lifetime of the product). At TSL 6, 

the fraction of consumers experiencing an LCC benefit is 68 percent for gas-fired storage water 

heaters, 50 percent for electric storage water heaters, 55 percent for oil-fired storage water 

heaters, and 4 percent for gas-fired instantaneous water heaters. The fraction of consumers 

experiencing an LCC cost is 15 percent for gas-fired storage water heaters, 45 percent for electric 

storage water heaters, 0 percent for oil-fired storage water heaters, and 11 percent for gas-fired 

instantaneous water heaters. 

At TSL 6, the projected change in INPV ranges from a decrease of up to $305.8 million 

for gas-fired and electric storage water heaters, a decrease of up to $0.4 million for oil-fired 

storage water heaters, and a decrease of up to $1.8 million for gas-fired instantaneous water 

heaters, in 2008$. The negative impacts on INPV are driven largely by the required efficiencies 

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EE-2006-STD-0129 COMMENT 56.1
for electric storage water heaters which effectively require heat pump technology. The oil-fired 

storage water heater and gas-fired instantaneous water heater efficiencies do not require 

substantial changes to the existing operations for some manufacturers. The significant changes 

for electric storage water heaters help to drive the INPVs negative, especially if profitability is 

impacted after the compliance date of the amended energy conservation standard. In particular, if 

the high end of the range of impacts is reached as DOE expects, TSL 6 could result in a net loss 

of 36.3 percent in INPV for gas-fired and electric storage water heaters, a net loss of 4.3 percent 

in INPV for oil-fired storage water heaters, and a net loss of 0.3 percent in INPV for gas-fired 

instantaneous water heaters. 

TSL 6 includes efficiency levels for electric storage water heaters that are currently only 

achievable through the use of advanced heat pump technologies. DOE’s analysis indicates that 

dramatic reductions in energy use and substantial economic savings are possible for electric 

water heaters with the use of these technologies. The average savings for electric water heater 

customers estimated by DOE’s analysis for TSL 6 are primarily driven by the results for heat 

pump water heaters. While DOE finds the potential energy savings resulting from a national heat 

pump water heater standard very favorable, DOE has some concerns regarding the 

manufacturability and the market for heat pump water heaters, which are further discussed 

below. 

Heat pump technologies are currently used in space heating and cooling, and other 

refrigeration-cycle products, indicating that this technology is a viable design option. The use of 

heat pump water heaters adds dramatically to the MSP estimates, increasing the MSP more than 

$400 over the baseline electric storage water heater. In part due to this change, the total installed 

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EE-2006-STD-0129 COMMENT 56.1
 

cost to the consumer increases by an average of $900 for heat pump water heaters compared to 

traditional electric storage water heaters that use electric resistance heating elements. Even 

though there are potential benefits of adopting an amended energy conservation standard 

requiring heat pump technologies, DOE is concerned about the uncertainties currently 

experienced in the heat pump water heater market. 

Although most manufacturers are in the process of developing a heat pump water heater 

to offer to consumers in response to the ENERGY STAR program or have recently began to 

offer a heat pump water heater model for sale, heat pump water heaters were not offered for sale 

at the time DOE’s analysis was developed. DOE’s shipments model projects that by 2015 heat 

pump water heaters will achieve approximately five percent market share. The manufacturer 

impacts are driven primarily by the assumptions regarding the ability of manufacturers to 

produce heat pump water heaters in the full range of rated storage volumes in the quantities 

necessary to serve the entire market. Though most electric storage water heater manufacturers 

indicated that they are in the process of developing heat pump water heaters, all manufacturers 

believe that an efficiency level that requires heat pump water heater technology is not 

appropriate as an amended energy conservation standard. Several manufacturers expect that they 

will have to buy the heat pump modules from outside vendors because most water heater 

manufacturers have no experience manufacturing heat pumps and have limited space in their 

facilities to produce heat pump systems. Manufacturers stated that they would consider moving 

all or part of their existing production capacity abroad if the energy conservation standard is set 

at TSL 6 because many manufacturers expect to have to redesign their facilities completely to 

accommodate a minimum energy conservation standard requiring heat pump water heaters. DOE 

is concerned about the capability of manufacturers to convert all product lines to manufacture 

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EE-2006-STD-0129 COMMENT 56.1
heat pump water heaters in the volumes needed by the compliance date of the standard, because 

producing exclusively heat pump water heaters will require $119 million in conversion costs plus 

an additional $256 million in working capital for a $375 million cash requirement. In addition, 

water heater manufacturers would be dependent upon the ability of heat pump component 

manufacturers (e.g., compressor manufacturers) to ramp up production to support the new 

market by the compliance date of the amended standard. DOE invites comments on the viability 

for high-volume production of heat pump water heaters in the full range of rated storage volumes 

and also requests information or data that would allow an assessment of such viability to be 

conducted. (See Issue 11 under “Issues on Which DOE Seeks Comment” in section VII.E of this 

NOPR.) 

DOE also notes that the service industry has very little experience with integrated heat 

pump water heater designs because heat pump water heaters have only been available in the U.S. 

market in the past for short periods of time, and have only recently become available to the U.S. 

market once again. DOE is concerned that a typical installer or repair person would not have the 

requisite knowledge to troubleshoot or repair heat pump water heaters because they are more 

complex than traditional electric storage water heaters. It is unclear whether reliable installation 

and servicing could be achieved on the scale needed by the compliance date of the amended 

standard. 

In addition, although DOE’s analysis reveals that heat pump water heaters are capable of 

being installed in all of the types of installations currently serviced by the residential electric 

storage water heating market, DOE found that in certain situations (especially indoor locations) 

installations could be very costly for consumers, requiring them to alter their existing space to 

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EE-2006-STD-0129 COMMENT 56.1
accommodate a heat pump water heater. DOE estimates 30 to 40 percent of installations would 

require such building modifications. In part for this reason, DOE estimated that 12 percent of 

electric storage water heater consumers would experience an increase of more than $500 in their 

LCC compared to the base case. 

Another concern DOE has regarding heat pump water heaters is the impact on consumer 

utility in the instances when electric storage water heaters are installed in conditioned indoor 

spaces. DOE estimates that 39 percent of electric storage water heaters are installed in 

conditioned spaces. In these cases, the cold air given off by the heat pump module may 

negatively impact consumer comfort due to uneven heating and cooling. 

DOE strongly considered TSL 6 as the proposed standard level for residential water 

heaters. DOE is concerned, however, about the ability for manufacturers to ramp up production 

in time to meet the demand by the compliance date of amended standards, the potential large 

increases in total installed cost to certain consumers, the ability for the service industry to gain 

the knowledge and experience necessary to provide reliable service to consumers, the potential 

impacts on multi-family households, and the potential impacts on the space conditioning of the 

residence. DOE seeks comments and data from interested parties that will allow DOE to further 

bring clarity to the issues surrounding heat pump water heaters, and determine how the issues 

discussed in the paragraphs above could be adequately addressed prior to the compliance date of 

an amended national energy conservation standard for water heaters that would effectively 

require the use of such technology. (See Issue 16 under “Issues on Which DOE Seeks Comment” 

in section VII.E of this NOPR.) For today’s proposed rule, the Secretary tentatively concludes 

that at TSL 6, the benefits of energy savings, generating capacity reductions, and emission 

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EE-2006-STD-0129 COMMENT 56.1
 

reductions would be outweighed by the negative economic impacts on those consumers that 

would have to make structural changes to accommodate the larger footprint of the heat pump 

water heaters, the economic burden on a large fraction of consumers due to the large increases in 

first costs associated with heat pump water heaters, the disproportionate impacts to consumers in 

multi-family housing and others with comparatively low usage rates, the large capital conversion 

costs that could result in a large reduction in INPV for the manufacturers, and the uncertainties 

associated with the heat pump water heater market. DOE is particularly concerned about product 

availability for the heat pump water heater market since it is unclear whether manufacturers 

would be able to produce equipment in the volumes necessary to serve the entire market. DOE 

will revisit this decision and strongly reconsider adoption of TSL 6 in the final rule in light of 

any comments and data submitted by interested parties. 

Next, DOE considered TSL 5, in which DOE paired efficiency levels that would 

effectively require different technologies for large-volume and small-volume gas-fired and 

electric storage water heaters in an effort to promote advance technology penetration into the 

market and potentially save additional energy. Specifically, TSL 5 would effectively require heat 

pump technology for electric storage water heaters greater than 55 gallons and condensing 

technology for gas-fired storage water heaters greater than 55 gallons. 

TSL 5 would save 3.7 quads of energy, an amount DOE considers significant. Under TSL 

5, the NPV of consumer benefit would be $6.64 billion, using a discount rate of 7 percent, and 

$21.89 billion, using a discount rate of 3 percent. 

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The cumulative emissions reductions at TSL 5 are 217 Mt of CO2, 165 kt of NOX, and 

0.60 t of Hg. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 5 

is $0.492 to $5.409 billion, using a discount rate of 7 percent, and $1.162 to $12.787 billion, 

using a discount rate of 3 percent. Total generating capacity in 2044 is estimated to decrease by 

0.96 GW under TSL 5. 

At TSL 5, DOE projects that the average LCC impact is a gain (consumer cost savings) 

of $78 for gas-fired storage water heaters, a gain of $96 for electric storage water heaters, a gain 

of $395 for oil-fired storage water heaters, and no change for gas-fired instantaneous water 

heaters. The median payback period is 3.0 years for gas-fired storage water heaters, 5.9 years for 

electric storage water heaters, 0.5 years for oil-fired storage water heaters, and 23.5 years for 

gas-fired instantaneous water heaters (which is longer than the mean lifetime of the product). At 

TSL 5, the fraction of consumers experiencing an LCC benefit is 68 percent for gas-fired storage 

water heaters, 65 percent for electric storage water heaters, 55 percent for oil-fired storage water 

heaters, and 4 percent for gas-fired instantaneous water heaters. The fraction of consumers 

experiencing an LCC cost is 16 percent for gas-fired storage water heaters, 25 percent for electric 

storage water heaters, 0 percent for oil-fired storage water heaters, and 11 percent for gas-fired 

instantaneous water heaters. 

At TSL 5, the projected change in INPV ranges from a decrease of up to $129.9 million 

for gas-fired and electric storage water heaters, a decrease of up to $0.4 million for oil-fired 

storage water heaters, and a decrease of up to $1.8 million for gas-fired instantaneous water 

heaters, in 2008$. The negative impacts on INPV are driven largely by the required efficiencies 

for gas-fired and electric storage water heaters with rated storage volumes above 55 gallons. TSL 

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EE-2006-STD-0129 COMMENT 56.1
 

5 would effectively require heat pump technology and condensing technology for the electric and 

gas-fired storage water heaters at these volume sizes. The efficiency requirements at TSL 5 for 

electric storage water heater with a rated volume less than 55 also result in negative impacts 

because such large increases in insulation also require manufacturers to implement changes to 

their existing equipment. The oil-fired storage water heater and gas-fired instantaneous water 

heater efficiencies at TSL 5 do not require substantial changes to the existing operations for 

some manufacturers. The significant changes gas-fired and electric storage water heaters with 

rated storage volumes greater than 55 gallons help to drive the INPVs negative, especially if 

profitability is impacted after the compliance date of the amended energy conservation standard. 

In particular, if the high end of the range of impacts is reached as DOE expects, TSL 5 could 

result in a net loss of 15.4 percent in INPV for gas-fired and electric storage water heaters, a net 

loss of 4.3 percent in INPV for oil-fired storage water heaters, and a net loss of 0.3 percent in 

INPV for gas-fired instantaneous water heaters. 

DOE believes TSL 5 would provide an effective mechanism for increasing the market 

penetration for advanced-technology water heaters. Given DOE’s concerns with TSL 6 (which 

includes a national heat pump water heater standard for electric storage water heaters across the 

entire range of rated storage volumes) as described above, DOE also strongly considered 

proposing TSL 5. TSL 5 results in positive NPV of consumer benefit for both electric and gasfired storage water heaters, while also providing additional energy and carbon savings. 

Using DOE’s shipments model and market assessment, DOE estimated approximately 4 

percent of gas-fired storage water heater shipments and 11 percent of models would fall into the 

large-volume water heater category using the TSL 5 division (i.e., large water heaters with 

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storage volumes above 55 gallons). Similarly, DOE estimated approximately 9 percent of electric 

storage water heater shipments and 27 percent of models would fall into the large-volume water 

heater category using the TSL 5 division. Compared to TSL 6, TSL 5 effectively requires heat 

pump technology for a relatively small fraction of the electric storage water heater market, 

reduces the number of installations that would necessitate significant building modifications due 

to the size of heat pump water heaters, reduces the number of installations that have space 

conditioning impacts from cool air produced by the heat pump water heater operation, results in 

higher average savings and lower median payback periods, and reduces the negative impacts on 

consumer subgroups. For gas-fired storage water heaters, compared to a national condensing 

standard level (TSL 7), TSL 5 requires condensing technology for a relatively small fraction of 

the gas storage water heater market, reduces the number of installations that require significant 

building modifications due to the size of condensing gas water heaters, and results in higher 

average LCC savings and lower median payback period. 

Even though DOE has identified a number of benefits associated with TSL 5, DOE is 

aware that there are multiple issues associated with promulgating an amended energy 

conservation standard that affects only a subset of the products on the market. Potential issues 

with TSL 5 affecting both heat pump water heaters and condensing gas-fired water heaters 

include: (1) consumer acceptance; (2) training; (3) product substitution; (4) engineering resource 

constraints; (5) product discontinuation; and (6) manufacturing issues. 

First, consumers may elect not to buy the larger volume water heaters for a number of 

reasons, including increased first cost, being unfamiliar with the advanced technologies being 

used, and installation size constraints. Both heat pump and condensing water heaters are 

390
 

EE-2006-STD-0129 COMMENT 56.1
 

 

significantly more expensive than baseline water heaters of the same nominal capacity and take 

up more space per nominal gallon of capacity. As a result, consumers may buy multiple water 

heaters that are under the capacity limit and use them in parallel to achieve the same nominal 

capacity, although at a higher standby loss. 

Furthermore, the current water heater service and installation infrastructure has little to 

no experience installing and servicing these advanced-technology storage water heaters, leading 

to possible reluctance of contractors to install these products. To minimize unit damage and 

warranty claims and to improve market acceptance, manufacturers would likely have to expend 

significant additional resources to hire training staff to tour the country and to provide technical 

support at headquarters. Additionally, field technicians likely would need additional licenses and 

test equipment to be able to service heat pump water heaters properly (for example, to recover 

refrigerant). These additional requirements would likely increase installation and service costs 

beyond current levels, since consumers will have fewer servicers/installers to choose from and 

the products have become more complex. 

Due to the price discrepancy between the cost of commercial equipment (not covered by 

the heat pump and condensing requirement) and residential products of the same capacity, the 

use of commercially-classified storage water heater equipment in residential applications would 

likely significantly expand beyond current levels under TSL 5. Such substitutions have health 

and safety considerations such as the typical lack of FVIR protection and the higher allowable 

set-point temperatures for commercial equipment. 

391
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

Manufacturers would likely face constraints regarding the abilities of their engineering 

teams to develop multiple water heater families, as most engineering departments have limited 

experience with either advanced technology. At a minimum, condensing gas-fired products 

would require manufacturers to convert existing commercial equipment lines to residential use. 

However, multiple manufacturers are expected to have to develop completely new platforms in 

order to remain cost-competitive. 

In light of the above, manufacturers could decide that the demand for residential heat 

pump and condensing gas water heaters would likely drop to a point where product conversion 

and capital costs required to modify their operations are not justified. As a result, some 

manufacturers would likely no longer manufacture residential storage water heaters at rated 

storage volumes above the division point (i.e., 56 gallons and above). Even if a manufacturer 

were to offer products, development and capital costs make it likely that consumers would have 

fewer product families to choose from than presently exist. Mass-manufacturing facilities visited 

by DOE were typically fine-tuned for units with similar assembly processes and cannot 

accommodate units with a wide scope of assembly requirements. Units that fall outside these 

standardized (high-volume) production settings would likely have to be assembled on a separate 

line in a new facility adjacent to current manufacturing space. The costs to retrofit a 

manufacturing plant to allow production of these units are high and the industry reaction is 

uncertain. DOE seeks comments about whether manufacturers would upgrade just one of their 

facilities (and produce all heat pump and/or condensing units there) or would upgrade multiple 

facilities to minimize shipping costs and distribution costs. Additionally, manufacturers could 

continue the trend to relocate to new facilities or expand existing facilities abroad. 

392
 

EE-2006-STD-0129 COMMENT 56.1
 

DOE strongly considered TSL 5 and believes it would provide additional energy and 

carbon savings, while mitigating some of the issues associated with a national heat pump water 

heater standard. However, DOE has identified a number of potential issues with TSL 5 related to 

proposing standards that effectively require different technologies for different subsets of 

products. For today’s proposed rule, the Secretary tentatively concludes that at TSL 5, the 

benefits of energy savings, generating capacity reductions, economic savings for most 

consumers, and the emission reductions would be outweighed by the large capital conversion 

costs that could result in a large reduction in INPV for the manufacturers, the uncertainties 

associated with the rapid introduction of new product technologies, the large increases in first 

costs, especially for those consumers that would have to make structural changes, and the 

uncertainties associated with a promulgation of an amended energy conservation standards that 

only affects a subset of the market. DOE seeks comments and data from interested parties that 

will assist DOE in bringing further clarity to some of the issues surrounding the product division 

used in the two slope energy-efficiency equations, promulgation of different standards for a 

subset of products, the heat pump water heater market, the condensing water heater market, as 

well as help DOE determine how these issues can be adequately addressed prior to the 

compliance date of an amended energy conservation standard for residential water heaters. (See 

Issue 17 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.) DOE 

will revisit this decision and strongly consider adoption of TSL 5 in the final rule in light of any 

comments and data submitted by interested parties. 

Next, DOE considered TSL 4. TSL 4 would save 2.6 quads of energy, an amount DOE 

considers significant. Under TSL 4, the NPV of consumer benefit would be $4.8 billion, using a 

discount rate of 7 percent, and $15.6 billion, using a discount rate of 3 percent. 

393
 

EE-2006-STD-0129 COMMENT 56.1
The cumulative emissions reductions at TSL 4 are 154 Mt of CO2, 118 kt of NOX, and 

0.2 t of Hg. The estimated monetary value of the cumulative CO2 emissions reductions at TSL 4 

is $0.366 to $4.024 billion, using a discount rate of 7 percent, and $0.833 to $9.166 billion, using 

a discount rate of 3 percent. Total generating capacity in 2044 is estimated to decrease by 0.24 

GW under TSL 4. 

At TSL 4, DOE projects that the average LCC impact is a gain of $68 for gas-fired 

storage water heaters, a gain of $39 for electric storage water heaters, a gain of $395 for oil-fired 

storage water heaters, and no change for gas-fired instantaneous water heaters. The median 

payback period is 2.7 years for gas-fired storage water heaters, 5.8 years for electric storage 

water heaters, 0.5 years for oil-fired storage water heaters, and 23.5 years for gas-fired 

instantaneous water heaters (which is longer than the mean lifetime of the product). At TSL 4, 

the fraction of consumers experiencing an LCC benefit is 68 percent for gas-fired storage water 

heaters, 65 percent for electric storage water heaters, 55 percent for oil-fired storage water 

heaters, and 4 percent for gas-fired instantaneous water heaters. The fraction of consumers 

experiencing an LCC cost is 15 percent for gas-fired storage water heaters, 25 percent for electric 

storage water heaters, 0 percent for oil-fired storage water heaters, and 11 percent for gas-fired 

instantaneous water heaters. For gas-fired instantaneous water heaters, 85 percent of consumers 

would not be impacted at TSL 4 because DOE projects that they would purchase an appliance of 

equal or higher efficiency than the TSL 4 level. 

At TSL 4, the projected change in INPV ranges from a decrease of up to $79 million for 

gas-fired and electric storage water heaters, a decrease of up to $0.4 million for oil-fired storage 

394
 

EE-2006-STD-0129 COMMENT 56.1
water heaters, and a decrease of up to $1.8 million for gas-fired instantaneous water heaters, in 

2008$. The impacts on manufacturers are less significant at TSL4 because the technology used at 

TSL 4 does not greatly differ from baseline models for gas-fired, electric, and oil-fired storage 

water heaters. In addition, most manufacturers of gas-fired instantaneous water heaters offer 

products that meet or exceed the efficiencies required at TSL 4. If the high end of the range of 

impacts is reached as DOE expects, TSL 4 could result in a net loss of 9.4 percent in INPV for 

gas-fired and electric storage water heaters, a net loss of 4.3 percent in INPV for oil-fired storage 

water heaters, and a net loss of 0.3 percent in INPV for gas-fired instantaneous water heaters. 

After considering the analysis, comments on the January 13, 2009, notice and the 

preliminary TSD, and the benefits and burdens of TSL 4, the Secretary tentatively concludes that 

this TSL will offer the maximum improvement in efficiency that is technologically feasible and 

economically justified, and will result in significant conservation of energy. Further, benefits 

from carbon dioxide reductions (at a central value of $20) would increase NPV by between $366 

million and $4,024 million (2008$) at a 7% discount rate and between $833 million and $9,166 

million at a 3% discount rate. These benefits from carbon dioxide emission reductions, when 

considered in conjunction with the consumer savings NPV and other factors described above 

support DOE's tentative conclusion that trial standard level 4 is economically justified. 

Therefore, the Department today proposes to adopt TSL 4 as amended energy conservation 

standards for water heaters as shown in 

Table V.60. 

395
 

EE-2006-STD-0129 COMMENT 56.1
Table V.60 Proposed Minimum Energy Factor Requirements for Residential Water 

Heaters (TSL 4) 

Product Class Energy Factor Requirement 

Gas-fired Storage For tanks with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 – (0.0012 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 – (0.0019 x Rated 

Storage Volume in gallons) 

Electric Storage For tanks with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.96 – (.0003 x Rated 

Storage Volume in gallons) 

For tanks with a Rated Storage 

Volume above 80 gallons: 

EF = 1.088 – (.0019 x Rated 

Storage Volume in gallons) 

Oil-fired Storage EF = 0.68 – (.0019 x Rated Storage Volume in gallons) 

Gas-fired Instantaneous EF = 0.82 – (.0019 x Rated Storage Volume in gallons) 

DOE also calculated the annualized values for certain benefits and costs under the 

considered TSLs. The annualized values refer to consumer operating cost savings, consumer 

incremental product and installation costs, the quantity of emissions reductions for CO2, NOX, 

and Hg, and the monetary value of CO2 emissions reductions (using a value of $20/t CO2, which 

is in the middle of the values considered by DOE for valuing the potential global benefits 

resulting from reduced CO2 emissions). 

DOE used a two-step calculation process to convert the time-series of costs and benefits 

into annualized values. First, DOE calculated a present value for the time-series of costs and 

benefits using a discount rate of either three or seven percent. From the present value, DOE then 

calculated the fixed annual payment over the analysis time period (2015 to 2045 for water 

heaters) that yielded the same present value. The fixed annual payment is the annualized value. 

Although DOE calculated annualized values, this does not imply that the time-series of cost and 

benefits from which the annualized values were determined are a steady stream of payments. 

396
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

 

TSL Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO Low 

Growth Case) 

High Estimate 

(High Growth 

Case) 

7% 3% 7% 3% 7% 3% 

1 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 709.5 885.3 663.7 824.2 755.3 946.6 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 2.63 2.83 3.04 3.01 0.52 0.77 

NOx 

(kt) 2.04 2.19 2.38 2.35 0.47 0.67 

Hg (t) 0.005 0.004 (0.002) (0.006) 0.005 0.007 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 90.4 108.0 105.1 126.5 17.6 30.8 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 292.9 282.3 277.2 265.3 308.7 299.4 

Net Benefits 

Monetized 

Value 

Million 

2008$ 507.0 711.0 491.6 685.4 464.3 677.9 

2 Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 1051.1 1309.8 984.4 1220.4 1117.9 1399.4 

Quantified 4.07 4.37 4.68 4.63 0.85 1.24 

Table V.61 presents the annualized values for each TSL considered for water heaters. 

The tables also present the annualized net benefit that results from summing the two monetary 

benefits and subtracting the consumer incremental product and installation costs. Although 

summing the value of operating savings with the value of CO2 reductions provides a valuable 

perspective, please note the following. The operating cost savings are domestic U.S. consumer 

monetary savings found in market transactions while the CO2 value is based on an estimate of 

imputed marginal SCC, which is meant to reflect the global benefits of CO2 reductions. In 

addition, the SCC value considers a longer time frame than the period considered for operating 

cost savings. 

Table V.61 Annualized Benefits and Costs for Water Heaters by Trial Standard Level 

CO2 

397
 

EE-2006-STD-0129 COMMENT 56.1
Emissions 

Reductions 

 

Monetized 

Avoided CO2

Value (at $19/t) 

 

Monetized 

Incremental 

Product and 

Installation 

Costs 

 

 

 

 

 

 

 

 

 

 

 

(Mt) 

NOx 

(kt) 3.16 3.38 3.66 3.61 0.77 1.07 

Hg (t) 0.007 0.006 (0.003) (0.009) 0.008 0.011 

Million 

2008$ 139.6 166.5 161.9 194.6 28.9 49.2 

Costs 

Million 

2008$ 576.2 557.9 545.2 524.1 607.5 591.9 

Net Benefits 

Monetized 

Value 

Million 

2008$ 614.5 918.5 601.1 890.8 539.4 856.8 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 1297.3 1610.6 1210.0 1496.1 1384.7 1725.0 

CO2 

(Mt) 4.36 4.68 5.05 5.00 0.72 1.13 

NOx 

(kt) 3.38 3.62 3.95 3.90 0.67 0.99 

Quantified 

Emissions 

Reductions 

Hg (t) 0.008 0.007 (0.003) (0.010) 0.009 0.012 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 149.6 178.4 175.0 210.3 24.1 45.2 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 785.3 761.4 742.9 715.3 828.0 807.9 

Net Benefits 

3 

Monetized 

Value 

Million 

2008$ 661.7 1027.7 642.0 991.2 580.8 962.4 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 1487.1 1842.4 1383.7 1708.4 1590.5 1976.2 

CO2 

(Mt) 4.58 4.92 5.34 5.28 0.61 1.04 

NOx 

(kt) 3.54 3.79 4.17 4.11 0.58 0.92 

Quantified 

Emissions 

Reductions 

Hg (t) 0.009 0.008 (0.003) (0.011) 0.010 0.013 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 157.1 187.3 184.8 222.1 20.2 41.9 

Costs 

4 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 945.5 917.3 894.4 861.7 997.0 973.4 

398
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

 

 

 

 

Net Benefits 

Monetized 

Value 

Million 

2008$ 698.8 1112.4 674.1 1068.9 613.7 1044.7 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 2163.1 2670.6 2005.0 2469.3 2320.8 2871.2 

CO2 

(Mt) 6.18 6.83 14.38 14.84 3.11 3.56 

NOx 

(kt) 4.72 5.20 11.09 11.41 2.43 2.78 

Quantified 

Emissions 

Reductions 

Hg (t) 0.023 0.022 0.038 0.030 0.011 0.017 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 211.2 261.2 318.5 383.1 26.2 52.1 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 1413.1 1376.1 1336.7 1292.6 1490.2 1460.4 

Net Benefits 

5 

Monetized 

Value 

Million 

2008$ 961.2 1555.7 668.3 1176.7 830.6 1410.8 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 6331.1 7745.0 5801.0 7097.1 6857.9 8387.1 

CO2 

(Mt) 9.49 10.72 15.61 16.89 (2.13) (1.50) 

NOx 

(kt) 7.02 7.90 11.90 12.82 (1.58) (1.08) 

Quantified 

Emissions 

Reductions 

Hg (t) 0.077 0.075 0.038 0.036 0.004 0.012 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 321.6 410.0 537.9 646.5 (86.7) (62.2) 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 5405.0 5315.6 5112.0 4992.4 5700.5 5641.7 

Net Benefits 

6 

Monetized 

Value 

Million 

2008$ 1247.7 2839.3 689.0 2104.7 1157.4 2745.4 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 9837.9 12187.1 9105.6 11255.5 10568.4 13115.0 

CO2 

(Mt) 26.82 30.05 39.27 39.00 3.17 5.19 

NOx 

(kt) 20.41 22.79 30.34 29.99 2.91 4.51 

7 

Quantified 

Emissions 

Reductions 

Hg (t) 0.157 0.153 0.078 0.056 0.007 0.024 

399
 

EE-2006-STD-0129 COMMENT 56.1
Monetized 

Avoided CO2

Value (at $19/t) 

 

Monetized 

Incremental 

Product and 

Installation 

Costs 

 

 

 

 

 

 

 

 

 

 

 

 

Million 

2008$ 916.6 1153.3 1357.0 1634.6 85.6 192.1 

Costs 

Million 

2008$ 9527.4 9348.7 9010.5 8779.1 10048.9 9923.2 

Net Benefits 

Monetized 

Value 

Million 

2008$ 1227.2 3991.8 1452.1 4110.9 605.1 3383.9 

2. Direct Heating Equipment 

Table V.62 presents a summary of the impacts for each TSL considered for DHE. 

Table V.62 Summary of Results for Direct Heating Equipment 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) 0.15 0.17 0.22 0.39 0.44 1.08 

 3% discount rate 0.09 0.10 0.12 0.22 0.24 0.61 

 7% discount rate 0.04 0.05 0.06 0.11 0.12 0.31 

NPV of Consumer Benefits (2008$ billion) 

3% discount rate 1.68 1.87 2.22 (0.33) (0.26) (2.63) 

7% discount rate 0.71 0.79 0.91 (0.89) (0.93) (3.54) 

Industry Impacts 

Traditional Direct Heating Equipment 

Industry NPV (2008$ million) (0.4) – (1.6) (0.6) – 

(3.1) 

(1.1) – 

(6.0) 

(1.3) – 

(7.6) 

(1.8) – 

(8.0) 

(2.2) – 

(10.8) 

Industry NPV (% change) (2.3) – (9.1) (3.4) – 

(17.2) 

(5.9) – 

(33.5) 

(7.2) – 

(42.1) 

(10.0) – 

(44.8) 

(12.3) – 

(60.0) 

Gas Hearth Direct Heating Equipment 

Industry NPV (2008$ million) (0.2) – (0.9) (0.2) – 

(0.9) 

(0.2) – 

(0.9) 

2.4 – 

(14.8) 

2.4 – 

(14.8) 10.2 – (55.1) 

Industry NPV (% change) (0.2) – (1.1) (0.2) – 

(1.1) 

(0.2) – 

(1.1) 

2.8 – 

(17.1) 

2.8 – 

(17.1) 11.8 – (63.8) 

Cumulative Emissions Reduction* 

CO2 (Mt) 6.3 7.0 8.5 16.7 18.5 43.0 

NOX (kt) 5.8 6.4 7.7 15.2 16.9 39.6 

Value of Cumulative Emissions Reduction (2008$ million) ††

 CO2 – 3% discount rate 

 CO2 – 7% discount rate 

34.3 to 377 

16.2 to 178 

38.1 to 

419 

18.0 to 

198 

46.2 to 

508 

21.8 to 

240 

90.5 to 

996 

42.9 to 

472 

100 to 

1,101 

47.4 to 

521 

233 to 2,564 

111 to 1,216 

NOX – 3% discount rate 

NOX – 7% discount rate 

1.4 to 14.5 

0.7 to 7.3 

1.6 to 

16.1 

0.8 to 8.0 

1.9 to 

19.4 

0.9 to 

3.7 to 

38.3 

1.9 to 

4.1 to 

42.5 

2.1 to 

9.7 to 99.4 

4.9 to 50.0 

400
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

9.7 19.2 21.3 

Mean LCC Savings** (2008$) 

Gas Wall Fan 73 90 104 135 73 135 

Gas Wall Gravity 25 83 192 192 68 68 

Gas Floor 13 13 13 13 13 13 

Gas Room 42 96 143 143 646 646 

Gas Hearth 96 96 96 (70) (70) (253) 

Median PBP (years) 

Gas Wall Fan 3.1 3.9 6.0 9.8 3.1 9.8 

Gas Wall Gravity 8.1 6.5 8.3 8.3 13.0 13.0 

Gas Floor 14.7 14.7 14.7 14.7 14.7 14.7 

Gas Room 8.1 4.9 5.3 5.3 7.0 7.0 

Gas Hearth 0.0 0.0 0.0 25.9 25.9 37.5 

Distribution of Consumer LCC Impacts 

Gas Wall Fan 

Net Cost (%) 3 5 30 44 3 44 

No Impact (%) 59 55 14 5 59 5 

Net Benefit (%) 38 41 56 52 38 52 

Gas Wall Gravity 

Net Cost (%) 12 19 39 39 59 59 

No Impact (%) 70 40 0 0 0 0 

Net Benefit (%) 18 41 61 61 41 41 

Gas Floor 

Net Cost (%) 25 25 25 25 25 25 

No Impact (%) 57 57 57 57 57 57 

Net Benefit (%) 18 18 18 18 18 18 

Gas Room 

Net Cost (%) 19 19 20 20 26 26 

No Impact (%) 50 25 25 25 25 25 

Net Benefit (%) 31 56 55 55 49 49 

Gas Hearth 

Net Cost (%) 9 9 9 69 69 81 

No Impact (%) 51 51 51 13 13 0 

Net Benefit (%) 40 40 40 17 17 19 

Generation Capacity Change (GW)*** +0.023 +0.025 +0.031 +0.045 +0.049 +0.119 

Employment Impacts 

Total Potential Changes in Domestic Production Workers in 2013 

Traditional Direct Heating Equipment (300) - 5 (300) - 30 (300) ­

44 (300) - 50 (300) ­

48 (300) - 61 

Gas Hearth Direct Heating Equipment (1,243) -7 (1,243) -7 (1,243) 

-7 

(1,243) ­

516 

(1,243) ­

516 (1,243) -846 

 Indirect domestic jobs (thousands)*** 0.16 0.18 0.23 0.08 0.09 0.24 

Parentheses indicate negative (-) values. 

* Hg emissions increase slightly (0.01 to 0.02 t) for the considered TSLs. 

** For LCCs, a negative value means an increase in LCC by the amount indicated. 

*** Changes in 2042. 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. 

401 

EE-2006-STD-0129 COMMENT 56.1
DOE first considered TSL 6, the max-tech level. TSL 6 would save 1.08 quads of energy, 

an amount DOE considers significant. TSL 6 would decrease consumer NPV by $3.54 billion, 

using a discount rate of 7 percent, and by $2.63 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 6 are 43.0 Mt of CO2 and 39.6 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 6 is $111 to $1,216 million, 

using a discount rate of 7 percent, and $233 to $2,564 million, using a discount rate of 3 percent. 

Total generating capacity in 2044 is estimated to increase slightly under TSL 6. 

At TSL 6, DOE projects that the average LCC impact for consumers is a gain of $135 for 

gas wall fan DHE, $68 for gas wall gravity DHE, $13 for gas floor DHE, $646 for gas room 

DHE and a loss of $253 for gas hearth DHE. The median payback period is 9.8 years for gas 

wall fan DHE, 13.0 years for gas wall gravity DHE, 14.7 years for gas floor DHE, 7.0 years for 

gas room DHE and 37.5 for gas hearth DHE (which is significantly longer than the mean lifetime 

of the product). At TSL 6, the fraction of consumers experiencing an LCC benefit is 52 percent 

for gas wall fan DHE, 41 percent for gas wall gravity DHE, 18 percent for gas floor DHE, 49 

percent for gas room DHE and 19 percent for gas hearth DHE. The fraction of consumers 

experiencing an LCC cost is 44 percent for gas wall fan DHE, 59 percent for gas wall gravity 

DHE, 25 percent for gas floor DHE, 26 percent for gas room DHE and 81 percent for gas hearth 

DHE. 

At TSL 6, the projected change in INPV ranges from a decrease of up to $10.8 million 

for traditional DHE and a decrease of up to $55.1 million for gas hearth DHE, in 2008$. Very 

few manufacturers offer products at the max-tech level for both traditional and gas hearth DHE. 

402
 

EE-2006-STD-0129 COMMENT 56.1
 

At TSL 6, almost every manufacturer would face substantial product and capital conversion costs 

to completely redesign most of their current products and existing production facilities. In 

addition, higher component costs could significantly harm profitability. If the high end of the 

range of impacts is reached as DOE expects, TSL 6 could result in a net loss of 60.0 percent in 

INPV for traditional DHE and a net loss of 63.8 percent in INPV for gas hearth DHE. In addition 

to the large, negative impacts on INPV at TSL 6, the required capital and product conversion 

costs could cause material harm to a significant number of small businesses in both the 

traditional and gas hearth DHE market. The conversion costs could cause many of these small 

businesses to exit the market. 

The Secretary tentatively concludes that at TSL 6, the benefits of energy savings, 

generating capacity reductions, and emission reductions would be outweighed by the negative 

impacts on consumer NPV, the economic burden on some consumers, the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers, and the 

potential impacts on a significant number of small businesses. Consequently, the Secretary has 

tentatively concluded that TSL 6 is not economically justified. 

Next, DOE considered TSL 5. TSL 5 would save 0.44 quads of energy, an amount DOE 

considers significant. TSL 5 would decrease consumer NPV by $0.93 billion, using a discount 

rate of 7 percent, and by $0.26 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 5 are 18.5 Mt of CO2 and 16.9 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 5 is $47.4 to $521 million, 

403
 

EE-2006-STD-0129 COMMENT 56.1
 

using a discount rate of 7 percent, and $100 to $1,101 million, using a discount rate of 3 percent. 

Total generating capacity in 2044 is estimated to increase slightly under TSL 5. 

At TSL 5, DOE projects that the average LCC impact for consumers is a gain of $73 for 

gas wall fan DHE, $68 for gas wall gravity DHE, $13 for gas floor DHE, $646 for gas room 

DHE and a loss of $70 for gas hearth DHE. The median payback period is 3.1 years for gas wall 

fan DHE, 13.0 years for gas wall gravity DHE, 14.7 years for gas floor DHE, 7.0 years for gas 

room DHE, and 25.9 for gas hearth DHE. At TSL 5, the fraction of consumers experiencing an 

LCC benefit is 38 percent for gas wall fan DHE, 41 percent for gas wall gravity DHE, 18 percent 

for gas floor DHE, 49 percent for gas room DHE, and 17 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 3 percent for gas wall fan DHE, 59 percent 

for gas wall gravity DHE, 25 percent for gas floor DHE, 26 percent for gas room DHE, and 69 

percent for gas room DHE. 

At TSL 5, the projected change in INPV ranges from a decrease of up to $8 million for 

traditional DHE and a decrease of up to $15 million for gas hearth DHE, in 2008$. While some 

manufacturers offer a limited number of products at TSL 5, most of the current products would 

have to be redesigned to meet the required efficiencies at TSL 5. In addition, higher component 

costs for both traditional and gas hearth DHE could significantly harm profitability. If the high 

end of the range of impacts is reached as DOE expects, TSL 5 could result in a net loss of 44.8 

percent in INPV for traditional DHE and a net loss of 17.1 percent in INPV for gas hearth DHE. 

In addition to the large, negative impacts on INPV at TSL 5, the required capital and product 

conversion costs could cause material harm to a significant number of small businesses in both 

404
 

EE-2006-STD-0129 COMMENT 56.1
the traditional and gas hearth DHE market. These manufacturers could be forced to discontinue 

many of their existing product lines and, possibly, exit the market altogether. 

The Secretary tentatively concludes that at trial standard level 5, the benefits of energy 

savings, generating capacity reductions, and emission reductions would be outweighed by the 

negative impacts on consumer NPV, the economic burden on some consumers, the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers, and the 

potential for small businesses to have to reduce or discontinue a significant number of their 

product lines. Consequently, the Secretary has tentatively concluded that trial standard level 5 is 

not economically justified. 

Next, DOE considered TSL 4. TSL 4 would save 0.39 quads of energy, an amount DOE 

considers significant. TSL 4 would provide a NPV of consumer benefit of $0.89 billion, using a 

discount rate of 7 percent, and $0.33 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 4 are 16.7 Mt of CO2 and 15.2 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 4 is $42.9 to $472 million, 

using a discount rate of 7 percent, and $90.5 to $996 million, using a discount rate of 3 percent. 

Total generating capacity in 2044 is estimated to increase slightly under TSL 4. 

At TSL 4, DOE projects that the average LCC impact for consumers is a gain of $73 for 

gas wall fan DHE, $68 for gas wall gravity DHE, $13 for gas floor DHE, $646 for gas room 

DHE, and a loss of $70 for gas hearth DHE. The median payback period is 9.8 years for gas wall 

fan DHE, 8.3 years for gas wall gravity DHE, 14.7 years for gas floor DHE, 5.3 years for gas 

405
 

EE-2006-STD-0129 COMMENT 56.1
 

 

room DHE and 25.9 years for gas hearth DHE (which is significantly beyond the mean lifetime 

of the equipment). At TSL 4, the fraction of consumers experiencing an LCC benefit is 52 

percent for gas wall fan DHE, 61 percent for gas wall gravity DHE, 18 percent for gas floor 

DHE, 55 percent for gas room DHE, and 17 percent for gas hearth DHE. The fraction of 

consumers experiencing an LCC cost is 44 percent for gas wall fan DHE, 39 percent for gas wall 

gravity DHE, 25 percent for gas floor DHE, 20 percent for gas room DHE and 69 percent for gas 

hearth DHE. 

At TSL 4, the projected change in INPV ranges from a decrease of up to $8 million for 

traditional DHE and decrease of up to $15 million for gas hearth DHE. While some 

manufacturers offer a limited number of products at TSL 4, most of the current products would 

have to be redesigned to meet the required efficiencies at TSL 4. In addition, higher component 

costs for both traditional and gas hearth DHE could significantly harm profitability. If the high 

end of the range of impacts is reached as DOE expects, TSL 4 could result in a net loss of 42.1 

percent in INPV for traditional DHE and a net loss of 17.1 percent in INPV for gas hearth DHE. 

In addition to the large, negative impacts on INPV at TSL 4, the required capital and product 

conversion costs could cause material harm to a significant number of small businesses in both 

the traditional and gas hearth DHE market. These manufacturers could be forced to reduce their 

product offerings to remain competitive. 

The Secretary tentatively concludes that at trial standard level 4, the benefits of energy 

savings, generating capacity reductions, and emission reductions would be outweighed by the 

negative impacts on consumer NPV, the economic burden on some consumers, the large capital 

conversion costs that could result in a large reduction in INPV for the manufacturers, and the 

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EE-2006-STD-0129 COMMENT 56.1
potential for small businesses of DHE to reduce their product offerings. Consequently, the 

Secretary has tentatively concluded that trial standard level 4 is not economically justified. 

Next, DOE considered TSL 3. TSL 3 would save 0.22 quads of energy, an amount DOE 

considers significant. TSL 3 would provide a NPV of consumer benefit of $0.91 billion, using a 

discount rate of 7 percent, and $2.22 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 3 are 8.5 Mt of CO2 and 7.7 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 3 is $21.8 to $240 million, 

using a discount rate of 7 percent, and $46.2 to $508 million, using a discount rate of 3 percent. 

Total electric generating capacity in 2044 is estimated to increase slightly under TSL 3. 

At TSL 3, DOE projects that the average LCC impact for consumers is a gain of $104 for 

gas wall fan DHE, $192 for gas wall gravity DHE, $13 for gas floor DHE, $143 for gas room 

DHE, and $96 for gas hearth DHE. The median payback period is 6.0 years for gas wall fan 

DHE, 8.3 years for gas wall gravity DHE, 14.7 years for gas floor DHE, 5.3 years for gas room 

DHE, and 0.0 years for gas hearth DHE. At TSL 3, the fraction of consumers experiencing an 

LCC benefit is 56 percent for gas wall fan DHE, 61 percent for gas wall gravity DHE, 18 percent 

for gas floor DHE, 55 percent for gas room DHE, and 40 percent for gas hearth DHE. The 

fraction of consumers experiencing an LCC cost is 30 percent for gas wall fan DHE, 39 percent 

for gas wall gravity DHE, 25 percent for gas floor DHE, 20 percent for gas room DHE, and 9 

percent for gas hearth DHE. 

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EE-2006-STD-0129 COMMENT 56.1
At TSL 3, the projected change in INPV ranges from a decrease of up to $6 million for 

traditional DHE and decrease of up to $1 million for gas hearth DHE. Most traditional direct 

heating manufacturers have existing products that meet the efficiencies required at TSL 3 in 

three out of four product categories. The impacts on gas hearth manufacturers are less significant 

at TSL 3 because manufacturers offer a wide range of product lines that meet the required 

efficiencies at TSL 3 and most products that do not meet TSL 3 could be upgraded with 

inexpensive purchased parts and fairly small conversion costs. If the high end of the range of 

impacts is reached, TSL 3 could result in a net loss of 33.5 percent in INPV for traditional DHE 

and a net loss of 1.1 percent in INPV for gas hearth DHE. In addition, the required capital and 

product conversion costs faced by small businesses decrease, mitigating the potential harm to a 

significant number of small businesses. 

After considering the analysis, comments on the January 13, 2009, notice and the 

preliminary TSD, and the benefits and burdens of TSL 3, the Secretary tentatively concludes that 

this trial standard level will offer the maximum improvement in efficiency that is technologically 

feasible and economically justified, and will result in significant conservation of energy. Further, 

benefits from carbon dioxide reductions (at a central value of $20) would increase NPV by 

between $21.8 million and $240 million (2008$) at a 7% discount rate and between $46.2 

million and $508 million at a 3% discount rate. These benefits from carbon dioxide emission 

reductions, when considered in conjunction with the consumer savings NPV and other factors 

described above support DOE's tentative conclusion that trial standard level 3 is economically 

justified. Therefore, the Department today proposes to adopt the energy conservation standards 

for DHE at TSL 3, as shown in Table V.63 . 

408
 

EE-2006-STD-0129 COMMENT 56.1
 

 

Table V.63 Proposed Minimum AFUE Requirements for Direct Heating Equipment (TSL 

3) 

Direct Heating Equipment 

Design Type 

Product Class Input Capacity 

Range 

Btu/h 

Annual Fuel Utilization 

Efficiency 

% 

Gas wall fan up to 42,000 76 

over 42,000 77 

Gas wall gravity 

up to 27,000 70 

over 27,000 and up to 46,000 71 

over 46,000 72 

Gas floor up to 37,000 57 

over 37,000 58 

Gas room 

up to 20,000 62 

over 20,000 and up to 27,000 67 

over 27,000 and up to 46,000 68 

over 46,000 69 

Gas hearth 

up to 20,000 61 

over 20,000 and up to 27,000 66 

over 27,000 and up to 46,000 67 

over 46,000 68 

DOE also calculated the annualized values for certain benefits and costs under the 

considered TSLs. The annualized values refer to consumer operating cost savings, consumer 

incremental product and installation costs, the quantity of emissions reductions for CO2, NOX, 

and Hg, and the monetary value of CO2 emissions reductions (using a value of $20/t CO2, which 

is in the middle of the values considered by DOE for valuing the potential global benefits 

resulting from reduced CO2 emissions). 

DOE used a two-step calculation process to convert the time-series of costs and benefits 

into annualized values. First, DOE calculated a present value for the time-series of costs and 

benefits using a discount rate of either three or seven percent. From the present value, DOE then 

calculated the fixed annual payment over the analysis time period (2013 to 2043 for DHE) that 

yielded the same present value. The fixed annual payment is the annualized value. Although 

DOE calculated annualized values, this does not imply that the time-series of cost and benefits 

409
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from which the annualized values were determined are a steady stream of payments. Table V.64 

presents the annualized values for each TSL considered for DHE. 

Table V.64 Annualized Benefits and Costs for Direct Heating Equipment by Trial 

Standard Level 

TSL Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO Low 

Growth Case) 

High Estimate 

(AEO High 

Growth Case) 

7% 3% 7% 3% 7% 3% 

1 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 97.7 121.1 93.5 115.5 100.7 125.0 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.18 0.20 0.32 0.34 0.10 0.11 

NOx 

(kt) 0.16 0.18 0.27 0.28 0.10 0.12 

Hg (t) (0.000) (0.000) (0.000) (0.001) (0.000) (0.000) 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 6.1 7.2 0.5 0.5 15.4 29.0 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 28.1 27.4 28.1 27.4 28.1 27.4 

Net Benefits 

Monetized 

Value 

Million 

2008$ 75.7 100.9 65.8 88.7 88.0 126.5 

2 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 108.8 135.0 104.1 128.9 112.2 139.3 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.20 0.22 0.35 0.37 0.11 0.12 

NOx 

(kt) 0.18 0.20 0.30 0.32 0.11 0.13 

Hg (t) (0.000) (0.000) (0.000) (0.001) (0.000) (0.000) 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 6.7 8.1 0.8 0.9 25.3 46.4 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 31.3 30.5 31.3 30.5 31.3 30.5 

Net Benefits 

Monetized 

Value 

Million 

2008$ 84.2 112.6 73.6 99.3 106.1 155.2 

410
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 132.2 164.4 126.4 156.9 136.2 169.6 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.24 0.27 0.43 0.46 0.13 0.14 

NOx 

(kt) 0.22 0.24 0.36 0.38 0.14 0.15 

Hg (t) (0.000) (0.001) (0.000) (0.001) (0.000) (0.000) 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 8.2 9.8 2.5 2.9 21.0 42.6 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 41.8 40.6 41.8 40.6 41.8 40.6 

Net Benefits 

Monetized 

Value 

Million 

2008$ 98.5 133.5 87.1 119.2 115.4 171.6 

4 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 250.4 310.9 239.6 297.0 257.9 320.7 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.48 0.52 0.85 0.89 0.32 0.36 

NOx 

(kt) 0.43 0.48 0.71 0.75 0.32 0.36 

Hg (t) 0.001 0.000 (0.003) (0.004) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 16.1 19.2 3.0 3.5 17.7 39.5 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 337.8 329.1 337.8 329.1 337.8 329.1 

Net Benefits 

Monetized 

Value 

Million 

2008$ (71.3) 1.0 (95.2) (28.6) (62.2) 31.1 

5 Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 279.4 347.3 267.3 331.8 287.7 358.3 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.53 0.58 0.93 0.99 0.35 0.40 

NOx 

(kt) 0.48 0.53 0.79 0.83 0.35 0.40 

Hg (t) 0.001 0.000 (0.003) (0.004) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 17.8 21.2 4.1 4.7 65.3 152.0 

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EE-2006-STD-0129 COMMENT 56.1
Monetized 

Incremental 

Product and 

Installation 

Costs 

 

 

 

 

 

 

Costs 

Million 

2008$ 371.6 361.8 371.6 361.8 371.6 361.8 

Net Benefits 

Monetized 

Value 

Million 

2008$ (74.5) 6.7 (100.1) (25.3) (18.6) 148.5 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 686.8 850.9 656.6 811.8 707.9 878.5 

CO2 

(Mt) 1.24 1.35 2.21 2.33 0.81 0.92 

NOx 

(kt) 1.13 1.23 1.87 1.98 0.82 0.93 

Quantified 

Emissions 

Reductions 

Hg (t) 0.001 0.001 (0.007) (0.011) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 41.5 49.4 8.6 10.0 74.7 181.1 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 1036.2 997.3 1036.2 997.3 1036.2 997.3 

Net Benefits 

6 

Monetized 

Value 

Million 

2008$ (307.9) (97.0) (371.0) (175.6) (253.5) 62.3 

3. Pool Heaters 

Table V.65 presents a summary of the energy savings and economic impacts for each 

TSL considered for pool heaters. 

Table V.65 Summary of Results for Pool Heaters 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) 0.02 0.03 0.08 0.10 0.13 0.28 

 3% discount rate 0.01 0.02 0.05 0.06 0.08 0.16 

 7% discount rate 0.00 0.01 0.03 0.03 0.04 0.09 

NPV of Consumer Benefits (2008$ billion) 

3% discount rate 0.16 0.18 0.40 0.25 (1.97) (4.51) 

7% discount rate 0.08 0.07 0.14 0.03 (1.27) (2.94) 

Industry Impacts 

Industry NPV (2008$ million) 0.1 – 

(0.2) 

0.4 – (1.0) (0.2) – 

(5.6) 

0.5 – (7.5) 3.1 – (19.5) 12.9 – 

(44.5) 

Industry NPV (% change) 0.1 – 0.7 – (1.7) (0.4) – 0.9 – (12.1) 5.0 – (31.8) 21.0 – 

412
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

(0.3) (9.1) (72.6) 

Cumulative Emissions Reduction* 

CO2 (Mt) 0.61 1.05 3.31 4.21 5.74 12.12 

NOX (kt) 0.55 0.94 2.98 3.74 5.10 10.77 

Value of Cumulative Emissions Reduction (2008$ million) ††

 CO2 – 3% discount rate 3.3 to 36 5.7 to 63 18 to 197 23 to 251 31 to 342 66 to 723 

 CO2 – 7% discount rate 1.6 to 18 2.8 to 31 8.9 to 97 11 to 123 15 to 168 33 to 354 

NOX – 3% discount rate 0.1 to 1.4 0.2 to 2.4 0.7 to 7.7 0.9 to 9.7 1.3 to 13.2 2.7 to 27.8 

NOX – 7% discount rate 0.1 to 0.7 0.1 to 1.3 0.4 to 4.0 0.5 to 5.0 0.7 to 6.9 1.4 to 14.5 

Mean LCC Savings** (2008$) 24 18 39 (13) (555) (1,323) 

Median PBP (years) 2.5 7.4 10.6 13.0 28.6 28.1 

Distribution of Consumer LCC Impacts 

Net Cost (%) 6 31 52 59 90 96 

No Impact (%) 64 46 24 22 6 1 

Net Benefit (%) 30 22 24 20 5 3 

Generation Capacity Change (GW)*** +0.002 +0.004 +0.011 +0.012 +0.016 +0.034 

Employment Impacts 

Total Potential Changes in Domestic 

Production Workers in 2013 

(644) ­

13 (644) - 34 (644) - 66 (644) - 93 (644) - 163 (644) ­

331 

Indirect domestic jobs 

(thousands)*** 

3.32 4.38 6.70 8.49 50.59 14.82 

Parentheses indicate negative (-) values. 

* The impacts for Hg emissions are negligible (less than 0.01 ton). 

** For LCCs, a negative value means an increase in LCC by the amount indicated. 

*** Changes in 2042. 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. 

DOE first considered TSL 6, the max-tech level. TSL 6 would save 0.28 quads of energy, 

an amount DOE considers significant. TSL 6 would decrease consumer NPV by $2.9 billion, 

using a discount rate of 7 percent, and by $4.5 billion, using a discount rate of 3 percent. 

The emissions reductions at TSL 6 are 12.1 Mt of CO2 and 10.8 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 6 is $33 million to $354 

million, using a discount rate of 7 percent, and $66 million to $723 million, using a discount rate 

of 3 percent. Total generating capacity in 2044 is estimated to increase slightly under TSL 6. 

At TSL 6, DOE projects that the average LCC impact for consumers is a loss of $1,323. 

The median payback period is 28.1 years (which is substantially longer than the mean lifetime of 

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EE-2006-STD-0129 COMMENT 56.1
 

the product). At TSL 6, the fraction of consumers experiencing an LCC benefit is 3 percent. The 

fraction of consumers experiencing an LCC cost is 96 percent. 

At TSL 6, the projected change in INPV to decrease by up to $44.5 million for gas-fired 

pool heaters. Currently, gas-fired pool heaters that meet the efficiencies required by TSL 6 are 

manufactured in extremely low volumes by a limited number of manufacturers. The significant 

impacts on manufacturers arise from the large costs to develop or increase the production of fully 

condensing products. In addition, manufacturers are significantly harmed if profitability is 

negatively impacted to keep consumers in the market for a luxury item that is significantly more 

expensive than most products currently sold. If the high end of the range of impacts is reached as 

DOE expects, TSL 6 could result in a net loss of 72.6 percent in INPV for gas-fired pool heaters. 

The Secretary tentatively concludes that at TSL 6, the benefits of energy savings and 

emission reductions would be outweighed by the negative economic impacts to the Nation, the 

economic burden on some consumers (as indicated by the large increase in total installed cost), 

and the large capital conversion costs that could result in a large reduction in INPV for the 

manufacturers. Consequently, the Secretary has tentatively concluded that TSL 6 is not 

economically justified. 

Next, DOE considered TSL 5. TSL 5 would save 0.13 quads of energy, an amount DOE 

considers significant. TSL 5 would decrease consumer NPV by $1.3 billion, using a discount rate 

of 7 percent, and by $2.0 billion, using a discount rate of 3 percent. 

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EE-2006-STD-0129 COMMENT 56.1
 

 

The emissions reductions at TSL 5 are 5.7 Mt of CO2 and 5.1 kt of NOX. The estimated 

monetary value of the cumulative CO2 emissions reductions at TSL 5 is $15 million to $168 

million, using a discount rate of 7 percent, and $31 million to $342 million, using a discount rate 

of 3 percent. Total generating capacity in 2044 is estimated to increase slightly under TSL 5. 

At TSL 5, DOE projects that the average LCC impact for consumers is a loss of $555. 

The median payback period is 28.6 years (which is substantially longer than the mean lifetime of 

the product). At TSL 5, the fraction of consumers experiencing an LCC benefit is 5 percent. The 

fraction of consumers experiencing an LCC cost is 90 percent. 

At TSL 5, the projected change in INPV to decrease by up to $19.5 million for gas-fired 

pool heaters. Currently, gas-fired pool heaters that meet the efficiencies required by TSL 5 are 

manufactured in extremely low volumes by a limited number of manufacturers, as with TSL 6. 

The significant adverse impacts on manufacturers arise from the large costs to develop or 

increase the production of products with multiple efficiency improvements. In addition, the 

potential for manufacturers to be significantly harmed increases if consumers purchasing 

decisions are impacted and shipments decline due to the large increases in first cost for a luxury 

item. If the high end of the range of impacts is reached as DOE expects, TSL 5 could result in a 

net loss of 31.8 percent in INPV for gas-fired pool heaters. 

The Secretary tentatively concludes that at TSL 5, the benefits of energy savings and 

emission reductions would be outweighed by the negative economic impacts to the Nation, the 

economic burden on some consumers (as indicated by the large increase in total installed cost), 

and the large capital conversion costs that could result in a large reduction in INPV for the 

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EE-2006-STD-0129 COMMENT 56.1
manufacturers. Consequently, the Secretary has tentatively concluded that TSL 5 is not 

economically justified. 

Next, DOE considered TSL 4. TSL 4 would save 0.10 quads of energy, an amount DOE 

considers significant. TSL 4 would increase consumer NPV by $0.03 billion, using a discount 

rate of 7 percent, and by $0.25 billion, using a discount rate of 3 percent. 

The cumulative emissions reductions at TSL 4 are 4.2 Mt of CO2 and 3.7 kt of NOX. The 

estimated monetary value of the cumulative CO2 emissions reductions at TSL 4 is $11 million to 

$123 million, using a discount rate of 7 percent, and $23 million to $251 million, using a 

discount rate of 3 percent. Total generating capacity in 2044 is estimated to increase slightly 

under TSL 4. 

At TSL 4, the estimated increase in the installed cost is $335. Because this increase is 

substantially balanced by a decrease in operating costs, DOE projects that the average LCC 

impact for consumers is a loss of $13 (note that this quantity represents only 0.2 percent of the 

average total LCC). The median payback period is 13.0 years, compared to a typical product life 

of 8 years. At TSL 4, the fraction of consumers experiencing an LCC benefit is 20 percent. The 

fraction of consumers experiencing a net increase in LCC (mainly due to having low pool heater 

operation) is 59 percent. Of these consumers, the average net increase in LCC would be about 

$172, which is about 3 percent of the average LCC for these consumers. 

At TSL 4, DOE projects that INPV decreases by up to $7.5 million for gas-fired pool 

heaters. At TSL 4, manufacturers believe that profitability could be harmed in order to keep 

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EE-2006-STD-0129 COMMENT 56.1
 

consumers in the market for a luxury item that is more expensive than the most common 

products currently sold. If the high end of the range of impacts is reached as DOE expects, TSL 4 

could result in a net loss of 12.1 percent in INPV for gas-fired pool heaters. 

After considering the analysis, comments on the January 13, 2009, notice and the 

preliminary TSD, and the benefits and burdens of TSL 4, the Secretary tentatively concludes that 

this trial standard level will offer the maximum improvement in efficiency that is technologically 

feasible and economically justified, and will result in significant conservation of energy. Further, 

benefits from carbon dioxide reductions (at a central value of $20) would increase NPV by 

between $11 million and $123 million (2008$) at a 7% discount rate and between $23 million 

and $251 million at a 3% discount rate. These benefits from carbon dioxide emission reductions, 

when considered in conjunction with the consumer savings NPV and other factors described 

above support DOE's tentative conclusion that trial standard level 4 is economically justified. 

Therefore, the Department today proposes to adopt the energy conservation standards for pool 

heaters at TSL 4, which requires a thermal efficiency of 84 percent for gas-fired pool heaters as 

shown in Table V.66. As discussed above, approximately 59 percent of consumers with pool 

heaters would experience a life cycle cost from the proposed standard for pool heaters, TSL 4. 

Further, DOE estimates that one-quarter of these consumers would experience LCC of less than 

2%. Although most consumers would experience some savings or very small increases in life 

cycle costs, DOE is seeking comment regarding the appropriateness of proposing TSL 4 for pool 

heaters since this efficiency level would increase life-cycle costs for most consumers. DOE also 

seeks comment on its consideration of TSL 3 as an alternative for the final standard level for 

pool heaters. (See Issue 18 under “Issues on Which DOE Seeks Comment” in section VII.E of 

this NOPR.) 

417
 

EE-2006-STD-0129 COMMENT 56.1
 

 

 

Table V.66 Proposed Minimum Thermal Efficiency Requirements for Pool Heaters (TSL 4) 

Product Class Thermal Efficiency 

% 

Gas-fired Pool Heaters 84 

DOE also calculated the annualized values for certain benefits and costs under the 

considered pool heater TSLs. The annualized values refer to consumer operating cost savings, 

consumer incremental product and installation costs, the quantity of emissions reductions for 

CO2, NOX, and Hg, and the monetary value of CO2 emissions reductions (using a value of $20/t 

CO2, which is in the middle of the values considered by DOE for valuing the potential global 

benefits resulting from reduced CO2 emissions). 

DOE used a two-step calculation process to convert the time-series of costs and benefits 

into annualized values. First, DOE calculated a present value for the time-series of costs and 

benefits using a discount rate of either three or seven percent. From the present value, DOE then 

calculated the fixed annual payment over the analysis time period (2013 to 2043 for pool heaters) 

that yielded the same present value. The fixed annual payment is the annualized value. Although 

DOE calculated annualized values, this does not imply that the time-series of costs and benefits 

from which the annualized values were determined are a steady stream of payments. Table V.67 

presents the annualized values for each TSL considered for pool heaters. 

Table V.67 Annualized Benefits and Costs for Pool Heaters by Trial Standard Level 

TSL Category Unit 

Primary Estimate 

(AEO Reference 

Case) 

Low Estimate 

(AEO Low 

Growth Case) 

High Estimate 

(AEO High 

Growth Case) 

7% 3% 7% 3% 7% 3% 

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1 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 9.52 10.93 9.10 10.43 9.80 11.26 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.02 0.02 0.02 0.03 0.01 0.01 

NOx 

(kt) 0.017 0.018 0.021 0.022 0.013 0.014 

Hg (t) 0.000 0.000 (0.000) (0.000) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 0.61 0.70 0.82 0.94 0.47 0.54 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 2.06 1.98 2.06 1.98 2.06 1.98 

Net Benefits 

Monetized 

Value 

Million 

2008$ 8.07 9.65 7.86 9.39 8.21 9.82 

2 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 16.35 18.78 15.64 17.92 16.83 19.35 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.03 0.03 0.04 0.04 0.02 0.03 

NOx 

(kt) 0.029 0.030 0.036 0.038 0.023 0.024 

Hg (t) 0.000 0.000 (0.000) (0.000) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 1.06 1.20 1.40 1.62 0.80 0.93 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 8.98 8.66 8.98 8.66 8.98 8.66 

Net Benefits 

Monetized 

Value 

Million 

2008$ 8.42 11.33 8.06 10.88 8.65 11.62 

3 Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 50.33 57.83 48.16 55.20 51.79 59.57 

Quantified 

Emissions 

Reductions 

CO2 

(Mt) 0.10 0.11 0.13 0.14 0.08 0.08 

NOx 

(kt) 0.091 0.095 0.113 0.120 0.072 0.077 

Hg (t) 0.000 0.000 (0.000) (0.001) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 3.33 3.80 4.42 5.10 2.55 2.93 

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EE-2006-STD-0129 COMMENT 56.1
Monetized 

Incremental 

Product and 

Installation 

Costs 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs 

Million 

2008$ 36.72 35.38 36.72 35.38 36.72 35.38 

Net Benefits 

Monetized 

Value 

Million 

2008$ 16.94 26.25 15.86 24.92 17.62 27.12 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 59.88 68.79 57.29 65.66 61.62 70.86 

CO2 

(Mt) 0.13 0.13 0.16 0.17 0.09 0.10 

NOx 

(kt) 0.112 0.119 0.134 0.143 0.085 0.091 

Quantified 

Emissions 

Reductions 

Hg (t) 0.000 0.000 (0.000) (0.001) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 4.20 4.84 5.24 6.08 3.01 3.47 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 56.66 54.59 56.66 54.59 56.66 54.59 

Net Benefits 

4 

Monetized 

Value 

Million 

2008$ 7.41 19.04 5.88 17.15 7.97 19.74 

Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 82.08 94.30 78.54 90.00 84.48 97.14 

CO2 

(Mt) 0.17 0.18 0.21 0.23 0.12 0.13 

NOx 

(kt) 0.153 0.162 0.183 0.195 0.116 0.124 

Quantified 

Emissions 

Reductions 

Hg (t) 0.000 0.000 (0.000) (0.001) (0.000) 0.000 

Monetized 

Avoided CO2 

Value (at $19/t) 

Million 

2008$ 5.72 6.58 7.15 8.25 4.11 4.73 

Costs 

Monetized 

Incremental 

Product and 

Installation 

Costs 

Million 

2008$ 207.11 204.15 207.11 204.15 207.11 204.15 

Net Benefits 

5 

Monetized 

Value 

Million 

2008$ (119.31) (103.27) (121.42) (105.90) (118.52) (102.28) 

6 Benefits 

Monetized 

Operating Cost 

Savings 

Million 

2008$ 174.79 200.78 167.22 191.59 179.91 206.84 

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Quantified 

Emissions 

Reductions 

 

Monetized 

Avoided CO2

Value (at $19/t) 

 

Monetized 

Incremental 

Product and 

Installation 

Costs 

 

 

 

CO2 

(Mt) 0.37 0.39 0.45 0.48 0.26 0.27 

NOx 

(kt) 0.324 0.343 0.388 0.411 0.244 0.261 

Hg (t) 0.000 0.000 (0.001) (0.002) (0.000) 0.000 

Million 

2008$ 12.04 13.94 15.10 17.45 8.65 9.98 

Costs 

Million 

2008$ 464.57 452.23 464.57 452.23 464.57 452.23 

Net Benefits 

Monetized 

Value 

Million 

2008$ (277.74) (237.52) (282.25) (243.19) (276.01) (235.41) 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

Section 1(b)(1) of Executive Order 12866, “Regulatory Planning and Review,” 58 FR 

51735 (Oct. 4, 1993), requires each agency to identify in writing the market failure or other 

problem that it intends to address, and that warrants agency action (including where applicable, 

the failure of private markets or public institutions), as well as assess the significance of that 

problem, to enable assessment of whether any new regulation is warranted. The problems that 

today’s proposed standards address are as follows: 

(1) There is a lack of consumer information and/or information processing capability about 

energy efficiency opportunities in the home appliance market. 

(2) There is asymmetric information (one party to a transaction has more and better 

information than the other) and/or high transactions costs (costs of gathering information 

and effecting exchanges of goods and services). 

(3) There are external benefits resulting from improved energy efficiency of heating 

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products that are not captured by the users of such equipment. These benefits include 

externalities related to environmental protection and energy security that are not reflected 

in energy prices, such as reduced emissions of greenhouse gases. 

In addition, DOE has determined that today’s regulatory action is a “significant 

regulatory action” under section 3(f)(1) of Executive Order 12866. Accordingly, section 6(a)(3) 

of the Executive Order requires that DOE prepare a regulatory impact analysis (RIA) on today’s 

proposed rule and that the Office of Information and Regulatory Affairs (OIRA) in the OMB 

review this proposed rule. DOE presented to OIRA for review the draft proposed rule and other 

documents prepared for this rulemaking, including the RIA, and has included these documents in 

the rulemaking record. They are available for public review in the Resource Room of DOE’s 

Building Technologies Program, 950 L’Enfant Plaza, SW., Suite 600, Washington, DC 20024, 

(202) 586-2945, between 9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal 

holidays. 

The RIA is contained in the TSD prepared for the rulemaking. The RIA consists of: (1) a 

statement of the problem addressed by this regulation, and the mandate for government action; 

(2) a description and analysis of the feasible policy alternatives to this regulation; (3) a 

quantitative comparison of the impacts of the alternatives; and (4) the national economic impacts 

of the proposed standards. 

The RIA calculates the effects of feasible policy alternatives to mandatory standards for 

heating products, and provides a quantitative comparison of the impacts of the alternatives. DOE 

evaluated each alternative in terms of its ability to achieve significant energy savings at 

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EE-2006-STD-0129 COMMENT 56.1
reasonable costs, and compared it to the effectiveness of the proposed rule. DOE analyzed these 

alternatives using a series of regulatory scenarios for the three types of heating products. It 

modified the heating product NIA models to allow inputs for these policy alternatives. Of the 

four product classes of residential water heaters subject to proposed standards, this RIA concerns 

only gas-fired storage and electric storage water heaters, which together represent the majority of 

shipments. Of the five product classes of DHE, this RIA concerns only gas wall fan DHE and 

gas hearth DHE, which together represent the majority of DHE shipments. 

DOE identified the following major policy alternatives for achieving increased energy 

efficiency in the three types of heating products: 

• No new regulatory action; 

• Consumer rebates; 

• Consumer tax credits; 

• Manufacturer tax credits; 

• Voluntary energy efficiency targets; 

• Bulk government purchases; 

• Early replacement programs; and 

• The proposed approach (energy conservation standards). 

DOE evaluated each alternative in terms of its ability to achieve significant energy 

savings at reasonable costs and compared it to the effectiveness of the proposed rule. Table VI.1 

through Table VI.5 show the results for energy savings and consumer NPV. 

Table VI.1 Impacts of Non-Regulatory Alternatives for Gas-Fired Storage Water Heaters 

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that Meet the Proposed Standard (TSL 4) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.51 1.19 3.46 

Consumer Tax Credits 0.31 0.72 2.08 

Manufacturer Tax Credits 0.15 0.36 1.04 

Voluntary Energy Efficiency Targets 0.12 0.29 0.83 

Early Replacement 0.001 -0.02 -0.04 

Bulk Government Purchases 0.005 0.01 0.04 

Proposed Standard 1.29 3.09 9.04 

* DOE determined the NPV from 2015 to 2045. 

Table VI.2 Impacts of Non-Regulatory Alternatives for Electric Storage Water Heaters 

that Meet the Proposed Standard (TSL 4) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.42 0.47 1.87 

Consumer Tax Credits 0.25 0.28 1.12 

Manufacturer Tax Credits 0.13 0.14 0.56 

Voluntary Energy Efficiency Targets 0.09 0.19 0.60 

Early Replacement 0.0023 -0.03 -0.05 

Bulk Government Purchases 0.0017 0.004 0.01 

Proposed Standard 1.21 1.59 6.02 

* DOE determined the NPV from 2015 to 2045. 

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Table VI.3 Impacts of Non-Regulatory Alternatives for Gas Wall Fan DHE that Meet the 

Proposed Standard (TSL 3) 

Policy Alternative 

Primary Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.003 0.010 0.023 

Consumer Tax Credits 0.002 0.006 0.006 

Manufacturer Tax Credits 0.001 0.003 0.003 

Voluntary Energy Efficiency Targets 0.0003 0.001 0.001 

Early Replacement <0.0001 -0.00001 -0.00003 

Bulk Government Purchases† NA NA NA 

Proposed Standard 0.013 0.042 0.11 

* DOE determined the NPV from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for gas wall fan DHE because the market share 

associated with publicly-owned housing is minimal. 

Table VI.4 Impacts of Non-Regulatory Alternatives for Gas Hearth DHE that Meet the 

Proposed Standard (TSL 3) 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 3% discount rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.03 0.15 0.36 

Consumer Tax Credits 0.02 0.09 0.22 

Manufacturer Tax Credits 0.01 0.05 0.11 

Voluntary Energy Efficiency Targets 0.012 0.06 0.15 

Early Replacement <0.001 -0.005 -0.006 

Bulk Government Purchases† NA NA NA 

Proposed Standard 0.14 0. 64 1.52 

* DOE determined the NPV from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market share 

associated with publicly-owned housing is minimal. 

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Table VI.5 Impacts of Non-Regulatory Alternatives for Pool Heaters that Meet the 

Proposed Standards (TSL 4) 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value* 

billion 2008$ 

7% discount 

rate 3% discount rate 

No New Regulatory Action 0.00 0.00 0.00 

Consumer Rebates 0.02 0.01 0.04 

Consumer Tax Credits 0.01 0.003 0.03 

Manufacturer Tax Credits 0.005 0.002 0.01 

Voluntary Energy Efficiency Targets 0.004 0.005 0.02 

Early Replacement <0.001 -0.002 -0.003 

Bulk Government Purchases† NA NA NA 

Proposed Standard 0.10 0.03 0.25 

* DOE determined the NPV from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no market share 

associated with publicly-owned housing. 

The NPV amounts shown in Table VI.1 through Table VI.5 refer to the NPV of consumer 

benefits. The costs to the government of each policy (such as rebates or tax credits) are not 

included in the costs for the NPV since, on balance, consumers in the aggregate both pay for 

rebates and tax credits through taxes and receive their benefits. The following paragraphs discuss 

the cumulative effect of each policy alternative listed in Table VI.1 through Table VI.5. (See the 

regulatory impact analysis in the NOPR TSD for details.) For comparison with the results 

reported below for the non-regulatory policies, the combined impacts of the proposed standards 

for the considered products are projected as 2.75 quads of national energy savings and an NPV 

of $5.39 billion (at a 7-percent discount rate). 

No new regulatory action. The case in which no regulatory action is taken constitutes the 

“base case” (or “no action”) scenario. Since this is the base case, energy savings and NPV are 

zero by definition. 

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EE-2006-STD-0129 COMMENT 56.1
Rebates. If consumers were offered a rebate that covered a portion of the incremental 

price difference between products meeting baseline efficiency levels and those meeting the 

energy efficiency levels in the proposed standard, DOE estimates that the percentage of 

consumers purchasing the more-efficient products would increase by 17.5 percent to 40 percent, 

depending on the product and the product class. DOE assumed this policy would permanently 

transform the market so that the increased percentage of consumers purchasing more-efficient 

products seen in the first year of the program would be maintained throughout the forecast 

period. At the estimated participation rates, the rebates would provide 0.98 quads of national 

energy savings and an NPV of $1.83 billion (at a 7-percent discount rate) for the considered 

products. Although DOE estimates that rebates would provide national benefits, they are 

expected to be much smaller than the benefits resulting from the proposed national standards. 

Consumer Tax Credits. If consumers were offered a tax credit that covered a portion of 

the incremental price difference between products meeting baseline efficiency levels and those 

meeting the energy efficiency levels in the proposed standards, DOE’s research suggests that the 

number of consumers buying a water heater, pool heater, or DHE that would take advantage of 

the tax credit would be approximately 60 percent of the number that would take advantage of 

rebates. As a result of the tax credit, the percentage of consumers purchasing more-efficient 

products would increase by 10.5 percent to 24 percent, depending on the product and product 

class. Therefore, tax credits would yield a fraction of the benefits of rebates. DOE assumed this 

policy would permanently transform the market so that the increased percentage of consumers 

purchasing more-efficient products seen in the first year of the program would be maintained 

throughout the forecast period. At the estimated participation rates, consumer tax credits would 

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EE-2006-STD-0129 COMMENT 56.1
provide 0.59 quads of national energy savings and an NPV of $1.10 billion (at a seven-percent 

discount rate) for the considered products. 

Manufacturer Tax Credits. DOE believes even smaller benefits would result from a 

manufacturer tax credit program that would effectively result in a lower price to the consumer by 

an amount that covers part of the incremental price difference between products meeting baseline 

efficiency levels and those meeting the proposed standards. Because these tax credits would go 

to manufacturers instead of consumers, DOE believes that fewer consumers would be aware of 

this program than a consumer tax credit program. DOE assumes that 50 percent of the consumers 

who would take advantage of consumer tax credits would buy more-efficient products offered 

through a manufacturer tax credit program. Thus, as a result of the manufacturer tax credit, the 

percentage of consumers purchasing the more-efficient products would increase by 5.2 percent to 

12 percent (i.e., 50 percent of the impact of consumer tax credits), depending on the product 

class. 

DOE assumed this policy would permanently transform the market so that the increased 

percentage of consumers purchasing more-efficient products seen in the first year of the program 

would be maintained throughout the forecast period. At the estimated participation rates, the 

rebates would provide 0.30 quads of national energy savings and an NPV of $0.56 billion (at a 

seven-percent discount rate) for the considered products. Thus, DOE estimated that manufacturer 

tax credits would yield a fraction of the benefits that consumer tax credits and rebates would 

provide. 

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EE-2006-STD-0129 COMMENT 56.1
 

Voluntary Energy Efficiency Targets. The Federal government’s ENERGY STAR 

program has voluntary energy efficiency targets for gas-fired and electric storage water heaters 

and gas-fired instantaneous water heaters. Some equipment purchases that result from the 

ENERGY STAR program already are reflected in DOE’s base-case scenario. DOE evaluated the 

potential impacts of increased marketing efforts by ENERGY STAR that would encourage the 

purchase of products meeting the proposed standard. DOE modeled the voluntary efficiency 

program based on this scenario and assumed that the resulting increased percentage of 

consumers purchasing more-efficient products would be maintained throughout the forecast 

period. DOE estimated that the enhanced effectiveness of voluntary energy efficiency targets 

would provide 0.23 quads of national energy savings and an NPV of $0.55 billion (at a 7-percent 

discount rate) for the considered products. Although this would provide national benefits, they 

would be much smaller than the benefits resulting from the proposed national standards. 

Early Replacement Incentives. This policy alternative envisions a program to replace old, 

inefficient water heaters, DHE, and pool heaters with models meeting the efficiency levels in the 

proposed standards. DOE projected a 4 percent increase in the annual retirement rate of the 

existing stock in the first year of the program. It assumed the program would last as long as it 

took to completely replace all of the eligible existing stock in the year that the program begins 

(2013 or 2015). DOE estimated that such an early replacement program would provide negligible 

national energy savings and NPV for the considered products. The national energy savings 

benefits would be negligible in comparison with the benefits resulting from the proposed 

national standards, and the NPV would actually be negative. 

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EE-2006-STD-0129 COMMENT 56.1
Bulk Government Purchases. Under this policy alternative, the government would be 

encouraged to purchase increased amounts of equipment that meet the efficiency levels in the 

proposed standards. Federal, State, and local government agencies could administer such a 

program. At the Federal level, this would be an enhancement to the existing Federal Energy 

Management Program (FEMP). DOE modeled this program by assuming an increase in 

installation of equipment meeting the efficiency levels of the proposed standards among those 

households for whom government agencies purchase or influence the purchase of water heaters. 

(Because the market share of DHE units in publicly-owned housing is minimal and the market 

share of pool heaters in publicly-owned housing is zero, the Department did not consider bulk 

government purchases for those products.) DOE estimated that bulk government purchases 

would provide negligible national energy savings (0.01 quads) and NPV ($0.14 billion) for the 

considered products, benefits that are much smaller than those estimated for the proposed 

national standards. 

Proposed Standards. DOE proposes to adopt the efficiency levels listed in section V.C. 

As indicated in the paragraphs above, none of the alternatives DOE examined would save as 

much energy as today’s proposed standards. Also, several of the alternatives would require new 

enabling legislation because authority to carry out those alternatives may not exist. 

Additional Policy Evaluation. In addition to the above non-regulatory policy alternatives, 

DOE evaluated the potential impacts of a policy that would allow States to require that some 

water heaters installed in new homes have an efficiency level higher than the Federal standard. 

At present, States are prohibited to require efficiency levels higher than the Federal standard; the 

considered policy would remove this prohibition in the case of residential water heaters. DOE 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

notes that removing the prohibition would require either legislative authority or DOE approval, 

after a case-by-case basis consideration on the merits, of waivers submitted by States. For the 

present rulemaking, DOE evaluated the impacts that such a policy would have for electric 

storage water heaters. 

Specifically, DOE estimated the impacts for a policy case in which several States adopted 

provisions in their building codes that would require electric storage water heaters to meet 

efficiency level 6 (2.0 EF, heat pump with two-inch insulation). DOE assumed that such codes 

would affect 25 percent of water heaters in all new homes built in the United States in 2015 and 

that the percentage would increase linearly to 75 percent by 2045. (DOE did not attempt to 

define the specific geographic areas that would be affected.) In this policy case, all other water 

heaters (those bought for replacement in existing homes) would meet the proposed standard level 

of 0.95 (efficiency level 5). DOE’s analysis accounts for the estimate that some new homes 

would have a water heater with EF greater than or equal to 2.0 (e.g. heat pump technology) in the 

absence of any amended standards (the base case). 

Table VI.6 shows the additional estimated national energy savings that would result from 

the considered building code policy, as well as the net present value of additional benefits to 

consumers (the purchasers of new homes that have electric water heaters that have an EF of at 

least 2.0). The table also shows the estimated national energy savings and NPV for electric 

storage water heaters under the proposed standards. The energy savings from this State building 

code requirement for new homes would be greater than the savings from the proposed standard 

for electric storage water heaters. This contrasts with the non-regulatory policy alternatives 

discussed above, whose savings are lower than those of the proposed standards. 

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EE-2006-STD-0129 COMMENT 56.1
 

Table VI.6 Impacts of Policy Allowing States to Incorporate Requirements for HighEfficiency Electric Storage Water Heaters in Building Codes 

Policy Alternative 

Primary 

Energy 

Savings 

quads 

Net Present Value 

billion 2008$ 

7% discount 

rate 

3% discount 

rate 

Proposed Standard (TSL 4) 

(Electric Storage Water Heaters) 1.21 1.59 6.02 

Proposed Standard (TSL 4) AND Policy 

Allowing States to Require Higher-Efficiency 

Electric Storage Water Heaters in New Homes 

1.69 2.13 8.33 

B. Review Under the Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an initial 

regulatory flexibility analysis (IRFA) for any rule that by law must be proposed for public 

comment, unless the agency certifies that the rule, if promulgated, will not have a significant 

economic impact on a substantial number of small entities. As required by Executive Order 

13272, “Proper Consideration of Small Entities in Agency Rulemaking” 67 FR 53461 (August 

16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the 

potential impacts of its rules on small entities are properly considered during the rulemaking 

process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the 

General Counsel’s website (www.gc.doe.gov). 

For the manufacturers of the three types of heating products, the Small Business 

Administration (SBA) has set a size threshold, which defines those entities classified as “small 

businesses” for the purposes of the statute. DOE used the SBA’s small business size standards to 

determine whether any small entities would be subject to the requirements of the rule. 65 FR 

30836, 30850 (May 15, 2000), as amended at 65 FR 53533, 53545 (September 5, 2000) and 

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EE-2006-STD-0129 COMMENT 56.1
 

 

codified at 13 CFR part 121.The size standards are listed by North American Industry 

Classification System (NAICS) code and industry description and are available at 

http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf. 

Residential water heater and pool heater manufacturing are classified under NAICS 335228, 

“Other Major Household Appliance Manufacturing” and DHE is classified under NAICS 

333414, “Heating Equipment (except warm air furnaces) Manufacturing.” The SBA sets a 

threshold of 500 employees or less for an entity to be considered as a small business for both of 

these categories as shown in Table VI.7. 

Table VI.7 SBA and NAICS Classification of Small Businesses Potentially Affected by this 

Rule 

Industry Description Revenue Limit Employee Limit NAICS 

Residential Water Heater Manufacturing N/A 500 335228 

Direct Heating Manufacturing N/A 500 333414 

Pool Heater Manufacturing N/A 500 335228 

DOE reviewed the potential standard levels considered in today’s NOPR under the 

provisions of the Regulatory Flexibility Act and the procedures and policies published on 

February 19, 2003. To better assess the potential impacts of this rulemaking on small entities, 

DOE conducted a more focused inquiry of the companies that could be small business 

manufacturers of products covered by this rulemaking. During its market survey, DOE used all 

available public information to identify potential small manufacturers. DOE’s research involved 

several industry trade association membership directories (including AHRI, HPBA, and APSP), 

product databases (e.g., AHRI, CEC, and ENERGY STAR databases), individual company 

websites, and marketing research tools (e.g., Dunn and Bradstreet reports) to create a list of 

every company that manufactures or sells water heaters, DHE, and gas-fired pool heaters 

covered by this rulemaking. DOE also asked stakeholders and industry representatives if they 

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EE-2006-STD-0129 COMMENT 56.1
 

were aware of any other small manufacturers during manufacturer interviews and at previous 

DOE public meetings. DOE reviewed all publicly-available data and contacted select companies 

on its list, as necessary, to determine whether they met the SBA’s definition of a small business 

manufacturer of covered residential water heaters, DHE, and pool heaters. DOE screened out 

companies that did not offer products covered by this rulemaking, did not meet the definition of 

a “small business,” or are foreign owned and operated. Ultimately, DOE identified five small 

residential water heater manufacturers, 12 small DHE manufacturers, and one small pool heater 

manufacturer that produce covered products and can be considered small businesses. Next, DOE 

attempted to contact these potential small business manufacturers to request an interview about 

the possible impacts on small business manufacturers. The results of discussions with 

manufacturers are set forth below. From these discussions, DOE determined the expected 

impacts of the rule on affected small entities. 

DOE looked at each type of heating product (water heaters, pool heaters, and direct 

heating) separately for purposes of determining whether certification was appropriate or an initial 

regulatory flexibility analysis was needed. 

1. Water Heater Industry 

The majority of residential water heaters are currently manufactured in the United States. 

Three large manufacturers control the overwhelming majority of storage water heater sales. 

Many foreign-owned and foreign-operated manufacturers of instantaneous gas-fired water 

heaters offer products for sale in the United States and make up part of the remaining domestic 

residential water heater market. A very small portion of the remaining residential water heater 

market is supplied by a combination of international and domestic companies, all of which have 

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EE-2006-STD-0129 COMMENT 56.1
 

 

less than a one-percent total market share. Part of the remaining market is also supplied by 

domestic companies that focus primarily on commercial, niche, or other products, but also 

manufacture residential water heaters that are covered by this rulemaking. 

DOE identified five domestic small businesses that manufacture residential water heaters. 

Each company’s product offerings were examined to help determine the potential impact of 

amended energy conservation standards. 

Only one of the small businesses identified by DOE manufactures primarily products that 

are covered by this rulemaking. This company offers two gas-fired instantaneous water heaters 

and is also developing a heat pump water heater. The products offered by this manufacturer are 

expected to meet the ENERGY STAR criteria for residential water heaters and to achieve 

efficiencies higher than the levels being proposed in this NOPR. Therefore, DOE believes that 

none of the products offered by this manufacturer would be impacted by the proposed energy 

conservation standards for residential water heaters. 

Three of the small businesses identified by DOE manufacture covered oil-fired 

residential water heaters, but focus mainly on other products. One of these three small businesses 

holds a significant portion of the residential oil-fired water heater market. The products offered 

by this manufacturer exceed the efficiencies of the proposed standard levels for residential oilfired storage water heaters. Therefore, DOE does not believe that the products offered by this 

manufacturer would be impacted by the proposed energy conservation standards for residential 

water heaters. The two other two small businesses that manufacture residential oil-fired storage 

water heaters both have a lower market share and collectively ship fewer than 5,000 units per 

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year. The first of these companies with low market share offers one residential oil-fired water 

heater model, but it would not need to be upgraded at the proposed energy conservation standard 

level. In addition, this manufacturer specializes in products outside of the scope of coverage for 

this rulemaking (e.g., commercial gas-fired storage water heaters, indirect water heaters, 

commercial electric storage water heaters, storage tanks, and boilers). The other company with 

low market share in the residential oil-fired market offers seven different oil-fired storage water 

heater models. However, this company does not certify these products on public databases and 

does not provide information about the input capacity or efficiency in its product literature, 

making it difficult to determine whether these are commercial or residential products and if they 

would need to be upgraded in response to the proposed energy conversation standards. However, 

from a review of the company website, DOE believes this manufacturer is also focused mostly 

on non-covered products. 

The final small manufacturer of residential water heaters has a full line of residential 

electric storage water heaters that would need to be upgraded or, possibly, discontinued in 

response to the proposed energy conservation standards. Depending on the importance of this 

residential line, this small business could exit the residential electric storage market rather than 

invest in the changes necessary to upgrade and recertify its existing electric storage products. 

However, this manufacturer has less than a one-percent market share in the residential storage 

water heater market. Product certification databases and the company website also indicate that 

this manufacturer focuses primarily on commercial water heaters and other non-covered products 

including indirect water heaters and boilers. Because of its focus on non-covered products, it is 

unlikely that this small business would be forced out of business in response to the proposed 

energy conservation standards. 

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 Because only one small manufacturer with very low market share in the electric storage 

water heater market and potentially one small business with very low market share in the 

residential oil-fired market would potentially be impacted by the proposed energy conservation 

standards in today’s rule, DOE certifies that the standards for water heaters set forth in the 

proposed rule, if promulgated, would not have a significant economic impact on a substantial 

number of small entities. Accordingly, DOE has not prepared a regulatory flexibility analysis for 

the water heaters portion of this rulemaking. DOE will transmit the certification and supporting 

statement of factual basis to the Chief Counsel for Advocacy of the Small Business 

Administration for review under 5 U.S.C. 605(b). 

DOE requests comment on the above analysis, as well as any information concerning 

small businesses that could be impacted by this rulemaking and the nature and extent of those 

potential impacts of the proposed energy conservation standards on small residential water heater 

manufacturers. (See Issue 19 under “Issues on Which DOE Seeks Comment” in section VII.E of 

this NOPR.) 

2. Pool Heater Industry 

The vast majority of residential pool heaters are currently manufactured in the United 

States. Four manufacturers supply over 95 percent of the market. Based on its market research, 

DOE identified only one small manufacturer of residential gas-fired pool heaters. The small 

manufacturer specializes in high-efficiency products that exceed the proposed energy 

conservation standard level, and, therefore, DOE does not believe the products offered by this 

manufacturer would be impacted by the proposed amended energy conservation standards for 

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EE-2006-STD-0129 COMMENT 56.1
residential pool heaters. Additionally, this small business manufacturer has a very low share of 

the residential gas-fired pool heater market. Because only one small business manufacturer of 

residential gas-fired pool heaters with small market share exists and because this company’s 

product exceeds the proposed energy conservation standard levels, DOE certifies that the 

standards for pool heaters set forth in the proposed rule, if promulgated, would not have a 

significant economic impact on a substantial number of small entities in the gas-fired pool heater 

industry. Accordingly, DOE has not prepared a regulatory flexibility analysis for the pool heaters 

portion of this rulemaking. DOE will transmit this certification and supporting statement of 

factual basis to the Chief Counsel for Advocacy of the Small Business Administration for review 

under 5 U.S.C 605(b). 

DOE requests comment on the above analysis, as well as any information concerning 

small businesses that could be impacted by this rulemaking and the nature and extent of those 

potential impacts of the proposed energy conservation standards on small residential gas-fired 

pool heater manufacturers. (See Issue 20 under “Issues on Which DOE Seeks Comment” in 

section VII.E of this NOPR.) 

3. Direct Heating Equipment Industry Characteristics 

As discussed in further detail below, DOE determined that it cannot certify that the 

proposed energy conservation standard levels for DHE, if promulgated, would not have a 

significant economic impact on a substantial number of small entities. This determination results 

from the large number of small DHE manufacturers and the expected impact of the proposed 

standards on these manufacturers, as well as the likely greater impact of the proposed standards 

on these small businesses. Consequently, DOE has prepared an IRFA for the direct heating 

equipment portion of this rulemaking, a copy of which DOE will transmit to the Chief Counsel 

438
 

EE-2006-STD-0129 COMMENT 56.1
for Advocacy of the SBA for review under 5 U.S.C 605(b). As presented and discussed below, 

the IFRA describes potential impacts on small DHE manufacturers associated with the required 

capital and product conversion costs at each TSL and discusses alternatives that could minimize 

these impacts. 

a. Description and Estimated Number of Small Entities Regulated 

After examining structure of the DHE industry, DOE determined it necessary to divide 

potential impacts on small DHE manufacturers into two broad categories: (1) impacts on small 

manufacturers of traditional DHE (i.e., manufacturers of gas wall fan, gas wall gravity, gas floor, 

and gas room DHE); and (2) impacts on small manufacturers of gas hearth products. The IRFA 

presents the results for traditional DHE and gas hearth DHE separately to be consistent with the 

MIA results in section V.B.2.b, which also separate DHE in this manner. Traditional DHE and 

gas hearth DHE are made by different manufacturers (i.e., all manufacturers of gas hearth 

products do not manufacture traditional DHE, and vice versa, with one exception). 

i. Traditional Direct Heating Equipment 

Three major manufacturers control almost 100 percent of the traditional DHE market. 

Two of the three major manufacturers of traditional DHE are small businesses. One of the small 

businesses produces only traditional DHE and has products in all four traditional DHE product 

classes (i.e., gas wall fan, gas wall gravity, gas floor, and gas room DHE). The second business 

produces all five products classes of DHE, including gas hearth DHE. DOE identified a third 

small business with less than a one-percent share of the traditional DHE market. This company 

offers two gas wall gravity models, but is mainly focused on specialty hearth products not 

covered by this rulemaking. 

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EE-2006-STD-0129 COMMENT 56.1
 

 ii. Gas Hearth Direct Heating Equipment 

DOE identified 10 small manufacturers of gas hearth DHE. Before issuing this NOPR, 

DOE attempted to contact the small business manufacturers of gas hearth DHE. One of the small 

businesses consented to being interviewed during the MIA interviews, and DOE received 

feedback from an additional two small businesses through survey responses. DOE also obtained 

information about small business impacts while interviewing manufacturers that exceed the 

small business size threshold of 500 employees in this industry. Both small business 

manufacturers and large manufacturers indicated that the number of competitors in the market 

has been declining in recent years due to industry consolidation and smaller companies exiting 

the market. Three major domestic manufacturers now supply a majority of the marketplace. 

None of the three major manufacturers is considered a small business. The remainder of the 

market is either imported (mostly by Canadian companies) or produced by one of 12 domestic 

manufacturers that hold varying market shares. 

b. Reasons for the Proposed Rule 

Title III of EPCA sets forth a variety of provisions designed to improve energy 

efficiency. Part A of Title III (42 U.S.C. 6291–6309) provides for the “Energy Conservation 

Program for Consumer Products Other Than Automobiles.” The program covers consumer 

products and certain commercial equipment, including residential DHE, and the statute directs 

DOE to consider new and amended energy conservation standards for those products. (42 U.S.C. 

6292(9)) DOE is proposing in today’s notice to amend energy conservation standards for DHE, 

as required by EPCA. (42 U.S.C. 6295(e)(4)) 

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EE-2006-STD-0129 COMMENT 56.1
c. Objectives of, and Legal Basis for, the Proposed Rule 

EPCA provides criteria for prescribing new or amended standards for covered products 

and equipment. (42 U.S.C 6295(o)) As indicated above, any new or amended standard for the 

products must be designed to achieve the maximum improvement in energy efficiency that is 

technologically feasible and economically justified (42 U.S.C. 6295(o)(2)(A)), although EPCA 

precludes DOE from adopting any standard that would not result in significant conservation of 

energy. (42 U.S.C. 6295(o)(3)(B)) Moreover, DOE may not prescribe a standard: (1) for certain 

products, if no test procedure has been established for the product; or (2) if DOE determines by 

rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 

6295(o)(3)) DOE’s current test procedures for water heaters, vented DHE, and pool heaters 

appear at Title 10 Code of Federal Regulations (CFR) part 430, subpart B, appendices E, O and 

P, respectively. EPCA also provides that, in deciding whether a standard is economically 

justified, DOE must, after receiving comments on the proposed standard, determine whether the 

benefits of the standard exceed its burdens by considering to the greatest extent practicable seven 

enumerated factors (described in section II.B above of the preamble). (42 U.S.C. 

6295(o)(2)(B)(i)) 

EPCA prescribes energy conservation standards for direct heating products, (42 U.S.C. 

6295(e)(3)) and directs DOE to conduct two cycles of rulemakings to determine whether to 

amend these standards. (42 U.S.C. 6295(e)(4)) This rulemaking represents the first round of 

amendments to the energy conservation standards for DHE. 

d. Description and estimate of compliance requirements 

i. Traditional Direct Heating Equipment 

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EE-2006-STD-0129 COMMENT 56.1
The number of manufacturers in the traditional DHE market has declined over the past 

decade and leveled off with three major manufacturers remaining. While DOE explicitly 

analyzed one representative input capacity range for the gas wall gravity, gas wall fan, gas floor, 

and gas room types of DHE, manufacturers offer product lines that typically span multiple BTU 

ranges with many different features. This can result in many individual products, or stock 

keeping units (SKUs), offered by each manufacturer per product line. The wide range of product 

offering by manufacturers is a legacy of a higher-volume market that now typically supplies 

replacement units. The remaining manufacturers have stayed in business by consolidating brands 

and the legacy products of companies that are no longer in business to take increasing shares of a 

smaller total market. Because each product line is manufactured in low volumes, the discrepancy 

between unit shipments and the number of product lines requiring significant product and capital 

conversion costs results in negative impacts for all manufacturers. Many product development 

costs (e.g., testing, certification, and marketing) are somewhat fixed, making manufacturing 

scale an important consideration in determining whether the product conversion costs are 

economically justified. Similarly, even though any capital conversion costs can be capitalized 

over a number of years, these costs must be paid up front and have a large enough volume to 

justify an added per-unit cost. 

DOE calculated its capital and product conversion costs for traditional DHE by 

estimating a per-product-line cost and assuming that every manufacturer would face the same 

per-product-line cost within each product class. DOE also assumed that any product line that did 

not meet the efficiency level being analyzed would be upgraded, thereby requiring product 

conversion and capital conversion costs. DOE used public data to calculate the number of 

product lines that would need to be upgraded at each TSL for each product class. To show how 

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EE-2006-STD-0129 COMMENT 56.1
 

 

 

the small businesses could be differentially harmed, DOE compared the conversion costs for a 

typical large manufacturer and a typical small manufacturer within the industry. To calculate the 

conversion costs for a typical small manufacturer and a typical large manufacturer, DOE used 

publicly-available information to determine the average number of product lines that met each 

efficiency level in each product category for a typical small manufacturer and a typical large 

manufacturer of traditional DHE. For both small and large, DOE multiplied the number of 

product lines that fell below the required efficiency level by its estimate of the per-line capital 

and product conversion cost. Table VI.8 and Table VI.9 show DOE’s estimates for the average 

number of product lines at each TSL for a typical small manufacturer and a typical large 

manufacturer of traditional DHE, respectively. 

Table VI.8 Number of Product Lines of a Typical Small Manufacturer 

Number of Gas 

Wall Fan-Type 

Product Lines 

at Each TSL 

Number of Gas 

Wall GravityType Product 

Lines at Each 

TSL 

Number of 

Gas FloorType 

Product 

Lines at 

Each TSL 

Number of 

Gas RoomType 

Product 

Lines at 

Each TSL 

Total 

Product 

Lines for all 

Product 

Classes 

Baseline 2 1.5* 0.5 1 5 

TSL 1 0 1 0.5 0.5 2 

TSL 2 1 0.5 0.5 0.5 2.5 

TSL 3 0.5 0 0.5 0 1 

TSL 4 1 0 0.5 0 1.5 

TSL 5 0 1 0.5 0 1.5 

TSL 6 1 1 0.5 0 2.5 

*Fractions of product lines result from taking the average number of product lines from publicly-available 

information 

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EE-2006-STD-0129 COMMENT 56.1
 

Table VI.9 Number of Product Lines of Typical Large Manufacturer 

Number of Gas 

Wall Fan-Type 

Product Lines 

at Each TSL 

Number of Gas 

Wall GravityType Product 

Lines at Each 

TSL 

Number of 

Gas FloorType 

Product 

Lines at 

Each TSL 

Number of 

Gas RoomType 

Product 

Lines at 

Each TSL 

Total 

Product 

Lines for all 

Product 

Classes 

Baseline 1 0 1 0 2 

TSL 1 1 1 1 0 3 

TSL 2 2 3 1 0 6 

TSL 3 2 0 1 1 4 

TSL 4 0 0 1 1 2 

TSL 5 1 0 1 0 2 

TSL 6 0 0 1 0 1 

Amended energy conservation standards have the potential to differentially affect the 

small businesses, because they generally lack the large-scale resources to alter their existing 

products and production facilities for those TSLs requiring major redesigns. While all 

manufacturers would be expected to be negatively impacted by amended energy conservation 

standards to varying degrees, the small businesses would face higher product conversion costs at 

lower TSLs than their large competitor. Both large and small manufacturers have several product 

offerings in each product class, sometimes at varying efficiency levels, but the larger 

manufacturer produces products with higher efficiencies in larger volumes. As a result, the small 

manufacturers would have to upgrade more product lines than the large manufacturer at lower 

TSLs. As shown in Table VI.10 and Table VI.11, modifying facilities and developing new, 

more-efficient products would cause a typical small manufacturer to incur higher product 

conversion costs than a typical larger manufacturer for TSL 1 through TSL 5. 

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EE-2006-STD-0129 COMMENT 56.1
Table VI.10 Total Conversion Costs for a Typical Small Manufacturer of Traditional 

Direct Heating Equipment 

 Capital 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

(2008$ millions) 

Product 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

(2008$ millions) 

Total Conversion 

Costs for a 

Typical Small 

Manufacturer 

(2008$ millions) 

Baseline $0 $0 $0 

TSL 1 $0.58 $0.29 $0.86 

TSL 2 $1.03 $0.44 $1.47 

TSL 3 $1.61 $0.69 $2.31 

TSL 4 $1.89 $0.80 $2.69 

TSL 5 $1.57 $1.20 $2.77 

TSL 6 $2.13 $1.40 $3.53 

Table VI.11 Total Conversion Costs for a Typical Large Manufacturer of Traditional 

Direct Heating Equipment 

 Capital 

Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2008$ millions) 

Product 

Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2008$ millions) 

Total Conversion 

Costs for a 

Typical Large 

Manufacturer 

(2008$ millions) 

Baseline $0 $0 $0 

TSL 1 $0.05 $0.06 $0.11 

TSL 2 $0.31 $0.15 $0.46 

TSL 3 $1.24 $0.54 $1.77 

TSL 4 $1.82 $0.77 $2.59 

TSL 5 $1.52 $1.08 $2.60 

TSL 6 $2.49 $1.47 $3.96 

Because the larger manufacturer offers more products at higher efficiencies, a typical 

small manufacturer faces disproportionate costs at the lower TSLs in absolute terms at TSL 1 

through TSL 5. However, at TSL 4 through TSL 6 a typical small manufacturer and a typical 

large manufacturer face similar product and capital conversion costs because a similar number of 

product lines fall below the required efficiencies. Despite being similar in absolute terms, at 

these TSLs the small manufacturers would be more likely to be disproportionately harmed at any 

TSL because they have a much lower volume across which to spread similar costs. To show how 

a smaller scale would harm a typical small business manufacturer, DOE used estimates of the 

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EE-2006-STD-0129 COMMENT 56.1
 

market shares within the industry for each product class to estimate the typical annual revenue, 

operating profit, research and development expense, and capital expenditures for a typical large 

manufacturer and a typical small manufacturer using the financial parameters in the DHE GRIM. 

Comparing the conversion costs of a typical small manufacturer to a typical large manufacturer 

with operating profit (earnings before interest and taxation (EBIT)) is a rough estimate of how 

quickly the investments could be recouped. Table VI.12 and Table VI.13 show these 

comparisons. 

Table VI.12 Comparison of a Typical Small Manufacturer’s Conversion Costs to Annual 

Expenses, Revenue, and Operating Profit 

Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1 170% 128% 6% 163% 

TSL 2 242% 155% 8% 221% 

TSL 3 378% 245% 12% 347% 

TSL 4 443% 283% 14% 404% 

TSL 5 367% 425% 15% 416% 

TSL 6 499% 495% 19% 531% 

Table VI.13 Comparison of a Typical Large Manufacturer’s Conversion Costs to Annual 

Expenses, Revenue, and Operating Profit 

 Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1 7% 12% 0% 10% 

TSL 2 42% 30% 1% 40% 

TSL 3 167% 110% 5% 154% 

TSL 4 246% 158% 8% 225% 

TSL 5 206% 220% 8% 225% 

TSL 6 337% 300% 12% 344% 

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EE-2006-STD-0129 COMMENT 56.1
 

Table VI.12 and Table VI.13 illustrate that, although the investments required at each 

TSL can be considered substantial for all companies, the impacts could be greater for a typical 

small business because of much lower production volumes and a comparable number of product 

offerings. At higher TSLs, it is more likely that manufacturers of traditional DHE would reduce 

the number of product lines they offer to keep their conversion costs at manageable levels. At 

higher TSLs, small manufacturers would face increasingly difficult decisions on whether to 

invest the capital required to be able to continue offering a full range of products, cut product 

lines, consolidate to maintain a large enough combined scale to spread the required conversion 

costs and operating expenses, or exit the market altogether. Because of the high conversion costs, 

manufacturers would likely eliminate their lower-volume product lines. Small manufacturers 

might only be able to afford to selectively upgrade their most popular products and be forced to 

discontinue lower-volume products because the product development costs that would be 

required to upgrade all of their existing product lines would be too high. 

DOE’s product line analysis reveals the potential for small businesses to be 

disproportionately harmed by the proposed standard levels and higher TSLs. Small traditional 

direct heating manufacturers have less access to capital than their larger competitor. Larger 

manufacturers profit from offering a variety of products and have the ability to fund required 

capital and product conversion costs using cash generated from all products. Unlike large 

manufacturers, the small manufacturers cannot leverage resources from other departments. With 

these considerations, it is more likely that the small businesses would have to spend an even 

greater proportion of their annual R&D and capital expenditures than shown in the industry-wide 

figures. 

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EE-2006-STD-0129 COMMENT 56.1
 Inaddition, small manufacturers have less buying power than their larger competitor. 

Traditional DHE is a low-volume industry, which can make it difficult for any manufacturer to 

take advantage of bulk purchasing power or economies of scale. The two small businesses have 

approximately half the market share of their large competitor, which puts them at a disadvantage 

when purchasing components and raw materials. In addition, the large manufacturer has a parent 

company that manufactures products and equipment other than traditional DHE. This 

manufacturer’s larger scale and additional manufacturing capacity (required for products and 

equipment other than DHE) also give the company more leverage with its suppliers as it 

purchases greater volumes of components and raw materials. During the manufacturer 

interviews, the small businesses commented that to comply with amended energy conservation 

standards, they would likely need to buy more purchased parts instead of producing most of the 

final product in-house. Because the large manufacturer has an advantage in purchasing power 

that would likely allow it to buy purchased parts at lower costs, an amended energy conservation 

standard that requires more purchased parts may differentially harm the profitability of the small 

businesses. 

Even though there is a potential for small businesses to be negatively impacted by the 

proposed standards, DOE believes that manufacturers, including the small businesses, would be 

able to maintain viable number of product offerings at TSL 3, the proposed standard level. A 

typical small business offers product families in three out of the four product types that would 

meet or exceed the proposed standard levels in today’s NOPR. For example, products are 

currently available on the market at the proposed standard level for gas wall gravity DHE, which 

comprise over 60 percent of the traditional DHE market. The proposed standard levels do not 

require manufacturers, including those that are small, to completely redesign all their product 

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EE-2006-STD-0129 COMMENT 56.1
 

 

lines. For those product lines that would need to be redesigned, DOE believes that small 

manufacturers would offer fewer product lines after amended energy conservation standards. 

However, DOE believes that the proposed standards would allow the small manufacturers to 

selectively upgrade their existing product lines and maintain viable production volumes after the 

compliance date of the amended energy conservation standards. DOE seeks comment on the 

potential impacts of amended standards on the small traditional DHE manufacturers. (See Issue 

21 and 22 under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.) 

ii. Gas Hearth-Type Direct Heating Equipment

 While the three large manufacturers have a larger product offering than the smaller 

manufacturers, both small and large manufacturers typically offer a wide range of covered gas 

hearth DHE. During interviews, manufacturers indicated that product lines typically are not 

based on efficiency. Rather, product lines are groups of gas stoves, gas inserts, or gas fireplaces 

with similar appearances and shapes that span input ratings to appeal to a range of customers 

with different heating and aesthetic requirements. A product line is typically built on the same 

production platform and shares many of the same appearance and optional features. However, 

because products lines are based on appearance, features, and dimensions, product lines do not 

necessarily have the same efficiency across all input capacities. 

DOE calculated the anticipated capital and product development costs for gas hearth 

DHE by estimating per-line cost. DOE used certification databases, product catalogs, interviews 

with manufacturers, and sources of public information to estimate the number of product lines 

that meet each TSL for every gas hearth DHE manufacturer for which data was available. If a 

product line contained several products that met different efficiencies at different capacities, 

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EE-2006-STD-0129 COMMENT 56.1
DOE assumed that the product line would be redesigned in response to amended energy 

conservation standards whenever the least-efficient product did not meet the required efficiency 

level. 

To show how small manufacturers would be potentially impacted compared to the large 

manufacturers, DOE assumed that the entire gas hearth DHE industry was comprised of the 12 

manufacturers identified in the market and technology assessment (see chapter 3 of the TSD for 

more information). Using all available public data, DOE then identified the product lines and the 

efficiency levels for each product line made by these manufacturers. DOE used this information 

calculate the product line offerings of a “typical” large manufacturer and small manufacturer. 

Table VI.14 and Table VI.15 show DOE’s estimates for the product lines of a typical small and a 

typical large gas hearth manufacturer. 

Table VI.14 Number of Product Lines of a Typical Small Manufacturer

 AFUE 

(percent) 

Number of 

Product Lines 

Baseline 64 5 

TSL 1, 2, and 3 67 3 

TSL 4 and 5 72 1 

TSL 6 93 0 

Table VI.15 Number of Product Lines of Typical Large Manufacturer

 AFUE 

(percent) 

Number of 

Product Lines 

Baseline 64 8 

TSL 1, 2, and 3 67 6 

TSL 4 and 5 72 3 

TSL 6 93 0 

Table VI.14 shows that a typical small manufacturer currently offers nine total product 

lines: 5 at baseline efficiency (i.e., 64 percent AFUE), 3 at 67 percent AFUE , and 1 at 72 percent 

AFUE. Table VI.14 suggests that a typical small manufacturer would need to upgrade up to five 

450 

EE-2006-STD-0129 COMMENT 56.1
 

product lines at TSL 1 through TSL 3, up to eight product lines at TSL 4 and TSL 5, and up to 

nine at TSL 6. Table VI.15 shows that a typical large manufacturer currently offers 17 total 

product lines: eight at the baseline (64 percent AFUE), six at 67 percent AFUE, and three at 72 

percent AFUE. Table VI.15 suggests that a typical large manufacturer would upgrade up to eight 

product lines at TSL 1 through TSL 3, up to 14 product lines at TSL 4 and TSL 5, and up to 17 at 

TSL 6. However, DOE recognizes that not all manufacturers of gas hearth DHE currently report 

the efficiency of their products using the DOE test procedure, and as a result they may offer 

products at other efficiencies. DOE requests comment on its characterization of a typical large 

and a typical small gas hearth DHE manufacturer. (See Issue 23 under “Issues on Which DOE 

Seeks Comment” in section VII.E of this NOPR.) 

To calculate the capital and product conversion costs for a typical large and a typical 

small manufacturer, DOE multiplied its estimate of the per-product-line capital and product 

conversion costs by the number of product lines a typical large and a typical small manufacturer 

would need to upgrade at each TSL. As described in section IV.H.2 above, DOE assumed 

manufacturers would only upgrade fifty percent of their existing product lines that did not meet 

the required efficiencies at each TSL for gas hearth DHE. Table VI.16 and Table VI.17 show 

DOE’s estimates for the product and capital conversion costs that a typical large manufacturer 

and a typical small manufacturer would be expected to incur at each TSL. 

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Table VI.16 Total Conversion Costs for a Typical Small Manufacturer of Gas Hearth 

Direct Heating Equipment 

 Capital 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

Product 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

Total Conversion 

Costs for a 

Typical Small 

Manufacturer 

Baseline $ ­ $ ­ $ ­

TSL 1, 2, and 3 $ 25,000 $ 66,667 $ 91,667 

TSL 4 and 5 $ 75,000 $ 200,000 $ 275,000 

TSL 6 $ 400,000 $ 800,000 $ 1,200,000 

Table VI.17 Total Conversion Costs for a Typical Large Manufacturer of Gas Hearth 

Direct Heating Equipment 

 Capital 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

Product 

Conversion 

Costs for a 

Typical Small 

Manufacturer 

Total Conversion 

Costs for a 

Typical Small 

Manufacturer 

Baseline $ ­ $ ­ $ ­

TSL 1, 2, and 3 $ 50,000 $ 133,333 $ 183,333 

TSL 4 and 5 $ 125,000 $ 333,333 $ 458,333 

TSL 6 $ 800,000 $ 1,600,000 $ 2,400,000 

Because a typical large manufacturer has significantly higher market shares and a greater 

number product lines, a large manufacturer would have higher conversion costs on an absolute 

basis than a typical small manufacturer. However, at every TSL, a typical small business 

manufacturer could be disproportionately impacted. To show how a much smaller manufacturing 

scale could harm small business manufacturers as compared to large manufacturers, DOE used 

the market share of a typical large manufacturer and a typical small manufacturer to estimate the 

annual revenue, EBIT, R&D expense, and capital expenditures for a typical large and typical 

small manufacturer. DOE then compared these costs to the required capital and product 

conversion costs at each TSL for a typical large and typical small manufacturer. Table VI.18 

through Table VI.19 show these comparisons. 

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Table VI.18 Comparison of a Typical Small Gas Hearth Direct Heating Equipment 

Manufacturer’s Conversion Costs to Annual Expenses, Revenue, and Profit 

 Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1, 2, and 3 33.2% 141.8% 2.9% 83.0% 

TSL 4 and 5 99.7% 425.5% 8.8% 248.9% 

TSL 6 531.9% 1702.2% 38.3% 1086.2% 

Table VI.19 Comparison of a Typical Large Gas Hearth-Type Direct Heating Equipment 

Manufacturer’s Conversion Costs to Annual Expenses, Revenue, and Profit 

 Capital 

Conversion Cost 

as a Percentage 

of Annual 

Capital 

Expenditures 

Product 

Conversion Cost 

as a Percentage 

of Annual R&D 

Expense 

Total Conversion 

Cost as a 

Percentage of 

Annual Revenue 

Total Conversion 

Cost as a 

Percentage of 

Annual EBIT 

Baseline - - - -

TSL 1, 2, and 3 3.2% 13.5% 0.3% 7.9% 

TSL 4 and 5 7.9% 33.8% 0.7% 19.8% 

TSL 6 50.7% 162.1% 3.6% 103.4% 

DOE’s product line analysis illustrates that small businesses have the potential to be 

differentially impacted by any amended energy conservation standard because the small 

businesses have a disproportionate number of product lines relative to their much smaller scale. 

For TSLs 4, 5 and 6, amended energy conservation standards could force a typical small business 

to hire additional engineers, discontinue product lines, or selectively upgrade more popular 

products with their present limited engineering and product development resources. Because the 

annual shipments of small manufacturers are several times lower than those of major 

manufacturers and small manufacturers typically only manufacture gas hearth DHE, small 

companies have less buying power than their larger competitors. The much larger production 

volumes of large manufacturers give them more leverage to negotiate lower prices with 

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EE-2006-STD-0129 COMMENT 56.1
component and material suppliers. Because these conversion costs are more substantial relative 

to the size of a typical small business, large manufacturers could take additional market share 

from small manufacturers at TSL 4 through TSL 6. Because TSLs 4 and 5 require additional 

plant modifications, the added conversion costs make it more likely that small manufacturers 

could discontinue some of their least popular product lines at TSL 4 and TSL 5. At TSL 6, the 

substantial conversion costs could cause even a large manufacturer to potentially decide to offer 

fewer product lines, to bring down the significant product conversion costs. Consequently, it is 

increasingly likely that higher conversion costs could cause many small businesses to exit the 

market or become severely constrained with the number of product lines offered at TSLs 4, 5, 

and 6. 

At TSLs 1 through 3, a typical small manufacturer would not face prohibitively large 

conversion costs to meet the amended energy conservation standards. At these TSLs, the 

amended energy conservation standards could be met with products that use electric ignition, 

which is not particularly capital intensive. These changes would also not require significant 

investments in product development costs by small businesses. The most substantial portion of 

the conversion costs at TSLs 1 through 3 would be testing, recertifying, and remarketing all the 

existing product lines that currently meet the baseline efficiencies. In addition, at TSL 1 through 

TSL 3, it is likely that small manufacturers would not discontinue a large number of product 

lines to lower product and capital conversion costs because these costs are not substantial. A 

typical small manufacturer has multiple product lines that meet and exceed the required 

efficiencies at TSL 3. Also, the proposed standard levels do not require manufacturers to 

substantially redesign product lines that fall below TSL 3. 

454
 

EE-2006-STD-0129 COMMENT 56.1
 

 

DOE’s analysis indicates that a typical small manufacturer of gas hearth DHE already 

offers multiple product lines that meet and exceed the required efficiencies at TSL 3, the 

proposed energy conservation standard. In addition, the proposed standard levels do not require 

substantial redesign to existing product lines that do not meet the proposed TSL 3. Because most 

of the product lines that do not meet the proposed TSL could be upgraded with relatively minor 

changes, DOE believes that manufacturers, including the small businesses, will be able to 

maintain a viable number of product offerings at the proposed standard level. DOE seeks 

comment on the potential impacts on the small gas hearth DHE manufacturers. (See Issue 24 

under “Issues on Which DOE Seeks Comment” in section VII.E of this NOPR.) 

e. Duplication, overlap, and conflict with other rules and regulations 

DOE is not aware of any rules or regulations that duplicate, overlap, or conflict with the 

rule being considered today. 

f. Significant Alternatives to the Proposed Rule 

The discussion above analyzes impacts on small businesses that would result from the 

other TSLs DOE considered. Though TSLs lower than the proposed TSLs are expected to reduce 

the impacts on small entities, DOE is required by EPCA to establish standards that achieve the 

maximum improvement in energy efficiency that are technically feasible and economically 

justified, and result in a significant conservation of energy. Thus DOE rejected the lower TSLs. 

In addition to the other TSLs being considered, the NOPR TSD includes a regulatory 

impact analysis. For DHE, this report discusses the following policy alternatives: (1) no standard, 

(2) consumer rebates, (3) consumer tax credits, (4) manufacturer tax credits, and (5) early 

455
 

EE-2006-STD-0129 COMMENT 56.1
 

replacement. While these alternatives may mitigate the economic impacts on small entities 

compared to the proposed standards, the energy savings of these regulatory alternatives are at 

least four times smaller than those expected from the proposed standard levels. Thus, DOE 

rejected these alternatives and is proposing the standards set forth in this rulemaking. 

DOE continues to seek input from businesses that would be affected by this rulemaking 

and will consider comments received in the development of any final rule. 

C. Review Under the Paperwork Reduction Act of 1995 

This rule contains a collection-of-information requirement subject to the Paperwork 

Reduction Act (PRA) which has been approved by OMB under control number 1910-1400. 

Public reporting burden for compliance reporting for energy and water conservation standards is 

estimated to average 30 hours per response, including the time for reviewing instructions, 

searching existing data sources, gathering and maintaining the data needed, and completing and 

reviewing the collection of information. Send comments regarding this burden estimate, or any 

other aspect of this data collection, including suggestions for reducing the burden, to DOE (see 

ADDRESSES) and by e-mail to Christine_J._Kymn@omb.eop.gov. 

Notwithstanding any other provision of the law, no person is required to respond to, nor 

shall any person be subject to a penalty for failure to comply with, a collection of information 

subject to the requirements of the PRA, unless that collection of information displays a currently 

valid OMB Control Number. 

456
 

EE-2006-STD-0129 COMMENT 56.1
D. Review Under the National Environmental Policy Act of 1969 

DOE has prepared a draft environmental assessment (EA) of the impacts of the proposed 

rule, pursuant to the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.), the 

regulations of the Council on Environmental Quality (40 CFR parts 1500–1508), and DOE’s 

regulations for compliance with the National Environmental Policy Act (10 CFR part 1021). This 

assessment includes an examination of the potential effects of emission reductions likely to result 

from the rule in the context of global climate change, as well as other types of environmental 

impacts. The draft EA has been incorporated into the TSD. Before issuing a final rule for the 

three type of heating products, DOE will consider public comments and, as appropriate, 

determine whether to issue a finding of no significant impact (FONSI) as part of a final EA or to 

prepare an environmental impact statement (EIS) for this rulemaking. 

E. Review under Executive Order 13132 

Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain 

requirements on agencies formulating and implementing policies or regulations that preempt 

State law or that have Federalism implications. The Executive Order requires agencies to 

examine the constitutional and statutory authority supporting any action that would limit the 

policymaking discretion of the States and to carefully assess the necessity for such actions. The 

Executive Order also requires agencies to have an accountable process to ensure meaningful and 

timely input by State and local officials in the development of regulatory policies that have 

Federalism implications. On March 14, 2000, DOE published a statement of policy describing 

the intergovernmental consultation process it will follow in the development of such regulations. 

65 FR 13735. DOE has examined today's proposed rule and has determined that it would not 

have a substantial direct effect on the States, on the relationship between the national 

457
 

EE-2006-STD-0129 COMMENT 56.1
 

 

government and the States, or on the distribution of power and responsibilities among the various 

levels of government. EPCA governs and prescribes Federal preemption of State regulations as 

to energy conservation for the products that are the subject of today’s proposed rule. States can 

petition DOE for exemption from such preemption to the extent, and based on criteria, set forth 

in EPCA. (42 U.S.C. 6297(d)) No further action is required by Executive Order 13132. 

F. Review Under Executive Order 12988 

With respect to the review of existing regulations and the promulgation of new 

regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform” (61 FR 4729 (Feb. 7, 

1996)) imposes on Executive agencies the general duty to adhere to the following requirements: 

(1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) 

provide a clear legal standard for affected conduct rather than a general standard and promote 

simplification and burden reduction. Section 3(b) of Executive Order 12988 specifically requires 

that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly 

specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or 

regulation; (3) provides a clear legal standard for affected conduct while promoting 

simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately 

defines key terms; and (6) addresses other important issues affecting clarity and general 

draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive 

Order 12988 requires Executive agencies to review regulations in light of applicable standards in 

section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one 

or more of them. DOE has completed the required review and determined that, to the extent 

permitted by law, this proposed rule meets the relevant standards of Executive Order 12988. 

458
 

EE-2006-STD-0129 COMMENT 56.1
 

G. Review Under the Unfunded Mandates Reform Act of 1995 

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) (UMRA) requires 

each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal 

governments and the private sector. For a proposed regulatory action likely to result in a rule that 

may cause the expenditure by State, local, and Tribal governments, in the aggregate, or by the 

private sector of $100 million or more in any one year (adjusted annually for inflation), section 

202 of UMRA requires a Federal agency to publish a written statement that estimates the 

resulting costs, benefits, and other effects of the rule on the national economy. (2 U.S.C. 

1532(a),(b)) The UMRA also requires a Federal agency to develop an effective process to permit 

timely input by elected officers of State, local, and Tribal governments on a proposed 

“significant intergovernmental mandate,” and requires an agency plan for giving notice and 

opportunity for timely input to potentially affected small governments before establishing any 

requirements that might significantly or uniquely affect small governments. On March 18, 1997, 

DOE published a statement of policy on its process for intergovernmental consultation under 

UMRA (62 FR 12820) (also available at www.gc.doe.gov). Although today’s proposed rule does 

not contain a Federal intergovernmental mandate, it may impose expenditures of $100 million or 

more on the private sector. 

Today’s proposed rule would likely result in a final rule that could impose expenditures 

of $100 million or more between 2013 and 2045 in the residential sector. Therefore, DOE must 

publish a written statement assessing the costs, benefits, and other effects of the rule on the 

national economy. Section 205 of UMRA also requires DOE to identify and consider a 

reasonable number of regulatory alternatives before promulgating a rule for which UMRA 

requires such a written statement. DOE must select from those alternatives the most cost459
 

EE-2006-STD-0129 COMMENT 56.1
effective and least burdensome alternative that achieves the objectives of the rule, unless DOE 

publishes an explanation for doing otherwise or the selection of such an alternative is 

inconsistent with law. 

As required by EPCA (42 U.S.C. 6295(o)), today’s proposed energy conservation 

standards for the three types of heating products would achieve the maximum improvement in 

energy efficiency that DOE has determined to be both technologically feasible and economically 

justified. DOE may not select a regulatory alternative that does not meet this statutory standard. 

A full discussion of the alternatives considered by DOE is presented in the “Regulatory Impact 

Analysis” section of the TSD for this proposed rule. Also, section 202(c) of UMRA authorizes 

an agency to prepare the written statement required by UMRA in conjunction with or as part of 

any other statement or analysis that accompanies the proposed rule. (2 U.S.C. 1532(c)) The TSD, 

preamble, and regulatory impact analysis for today’s proposed rule contain a full discussion of 

the rule’s costs, benefits, and other effects on the national economy, and, therefore satisfy 

UMRA’s written statement requirement. 

H. Review Under the Treasury and General Government Appropriations Act, 1999 

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 

105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that 

may affect family well-being. This rule would not have any impact on the autonomy or integrity 

of the family as an institution. Accordingly, DOE has concluded that it is not necessary to 

prepare a Family Policymaking Assessment. 

460
 

EE-2006-STD-0129 COMMENT 56.1
I. Review Under Executive Order 12630 

DOE has determined under Executive Order 12630, “Governmental Actions and 

Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (March 18, 1988), 

that this regulation would not result in any takings that might require compensation under the 

Fifth Amendment to the U.S. Constitution. 

J. Review Under the Treasury and General Government Appropriations Act, 2001 

Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 

U.S.C. 3516 note) provides for agencies to review most disseminations of information to the 

public under guidelines established by each agency pursuant to general guidelines issued by 

OMB. OMB’s guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE’s guidelines 

were published at 67 FR 62446 (Oct. 7, 2002). DOE has reviewed today’s notice under the OMB 

and DOE guidelines and has concluded that it is consistent with applicable policies in those 

guidelines. 

K. Review Under Executive Order 13211 

Executive Order 13211, “Actions Concerning Regulations That Significantly Affect 

Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires Federal agencies to 

prepare and submit to OIRA at OMB, a Statement of Energy Effects for any proposed significant 

energy action. A “significant energy action” is defined as any action by an agency that 

promulgates or is expected to lead to promulgation of a final rule, and that: (1) is a significant 

regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have 

a significant adverse effect on the supply, distribution, or use of energy; or (3) is designated by 

the Administrator of OIRA as a significant energy action. For any proposed significant energy 

461
 

EE-2006-STD-0129 COMMENT 56.1
 

action, the agency must give a detailed statement of any adverse effects on energy supply, 

distribution, or use should the proposal be implemented, and of reasonable alternatives to the 

action and their expected benefits on energy supply, distribution, and use. 

DOE has tentatively concluded that today’s regulatory action, which sets forth energy 

conservation standards for three types of heating products, is not a “significant energy action” 

because the proposed standards are not likely to have a significant adverse effect on the supply, 

distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. 

Therefore, DOE has not prepared a Statement of Energy Effects on the proposed rule. 

L. Review Under the Information Quality Bulletin for Peer Review 

On December 16, 2004, OMB, in consultation with the Office of Science and Technology 

(OSTP), issued its “Final Information Quality Bulletin for Peer Review” (the Bulletin). 70 FR 

2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer 

reviewed by qualified specialists before it is disseminated by the Federal government, including 

influential scientific information related to agency regulatory actions. The purpose of the 

Bulletin is to enhance the quality and credibility of the government’s scientific information. 

Under the Bulletin, the energy conservation standards rulemaking analyses are “influential 

scientific information,” which the Bulletin defines as “scientific information the agency 

reasonably can determine will have, or does have, a clear and substantial impact on important 

public policies or private sector decisions.” 70 FR 2664, 2667 (Jan. 14, 2005). 

In response to OMB’s Bulletin, DOE conducted formal in-progress peer reviews of the 

energy conservation standards development process and analyses, and has prepared a Peer 

462
 

EE-2006-STD-0129 COMMENT 56.1
Review Report on the energy conservation standards rulemaking analyses. Generation of this 

report involved a rigorous, formal, and documented evaluation using objective criteria and 

qualified and independent reviewers to make a judgment as to the technical/scientific/business 

merit, the actual or anticipated results, and the productivity and management effectiveness of 

programs and/or projects. The “Energy Conservation Standards Rulemaking Peer Review 

Report” dated February 2007 has been disseminated and is available at the following Web site: 

http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.htm. 

VII. Public Participation 

A. Public Meeting 

The time, date and location of the public meeting are listed in the DATES and 

ADDRESSES sections at the beginning of this document. To attend the public meeting, please 

notify Ms. Brenda Edwards at (202) 586-2945 or Brenda.Edwards@ee.doe.gov. As explained in 

the ADDRESSES section, foreign nationals visiting DOE Headquarters are subject to advance 

security screening procedures. 

B. Procedure for Submitting Requests to Speak 

Any person who has an interest in today's notice, or who is a representative of a group or 

class of persons that has an interest in these issues, may request an opportunity to make an oral 

presentation. Such persons may hand-deliver requests to speak, along with a computer diskette or 

CD in WordPerfect, Microsoft Word, PDF, or text (ASCII) file format, to the address shown in 

the ADDRESSES section at the beginning of this NOPR between the hours of 9:00 a.m. and 

463
 

EE-2006-STD-0129 COMMENT 56.1
4:00 p.m., Monday through Friday, except Federal holidays. Requests may also be sent by mail, 

or by e-mail to: Brenda.Edwards@ee.doe.gov. 

Persons requesting an opportunity to speak should briefly describe the nature of their 

interest in this rulemaking and provide a telephone number for contact. DOE requests persons 

scheduled to make an oral presentation to submit an advance copy of their statements at least one 

week before the public meeting. At its discretion, DOE may permit any person who cannot 

supply an advance copy of their statement to participate, if that person has made advance 

alternative arrangements with the Building Technologies Program. The request to give an oral 

presentation should ask for such alternative arrangements. 

C. Conduct of Public Meeting 

DOE will designate a DOE official to preside at the public meeting and may also use a 

professional facilitator to aid discussion. The meeting will not be a judicial or evidentiary-type 

public hearing, but DOE will conduct it in accordance with section 336 of EPCA. (42 U.S.C. 

6306) A court reporter will be present to record the proceedings and to prepare a transcript. DOE 

reserves the right to schedule the order of presentations and to establish the procedures governing 

the conduct of the public meeting. After the public meeting, interested parties may submit further 

comments on the proceedings as well as on any aspect of the rulemaking until the end of the 

comment period. 

The public meeting will be conducted in an informal, conference style. DOE will present 

summaries of comments received before the public meeting, allow time for presentations by 

participants, and encourage all interested parties to share their views on issues affecting this 

464
 

EE-2006-STD-0129 COMMENT 56.1
rulemaking. Each participant will be allowed to make a prepared general statement (within time 

limits determined by DOE), before the discussion of specific topics. DOE will permit other 

participants to comment briefly on any general statements. 

At the end of all prepared statements on a topic, DOE will permit participants to clarify 

their statements briefly and comment on statements made by others. Participants should be 

prepared to answer questions from DOE and from other participants concerning these issues. 

DOE representatives may also ask questions of participants concerning other matters relevant to 

this rulemaking. The official conducting the public meeting will accept additional comments or 

questions from those attending, as time permits. The presiding official will announce any further 

procedural rules or modification of the above procedures that may be needed for the proper 

conduct of the public meeting. 

DOE will make the entire record of this proposed rulemaking, including the transcript 

from the public meeting, available for inspection at the U.S. Department of Energy, Resource 

Room of the Building Technologies Program, 950 L’Enfant Plaza, SW., Washington, DC 20024, 

(202) 586-2945, between 9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal 

holidays. 

D. Submission of Comments 

DOE will accept comments, data, and other information on the proposed rule before or 

after the public meeting, but no later than the date provided at the beginning of this NOPR. 

Comments, data, and other information submitted to DOE’s email address for this rulemaking 

should be provided in WordPerfect, Microsoft Word, PDF, or text (ASCII) file format. Interested 

465
 

EE-2006-STD-0129 COMMENT 56.1
parties should avoid the use of special characters or any form of encryption and, wherever 

possible, comments should carry the electronic signature of the author. Comments, data, and 

information submitted to DOE via mail or hand delivery/courier should include one signed 

original paper copy. No telefacsimiles (faxes) will be accepted. 

According to 10 CFR 1004.11, any person submitting information that he or she believes 

to be confidential and exempt by law from public disclosure should submit two copies: one copy 

of the document including all the information believed to be confidential, and one copy of the 

document with the information believed to be confidential deleted. DOE will make its own 

determination about the confidential status of the information and treat it according to its 

determination. 

Factors of interest to DOE when evaluating requests to treat submitted information as 

confidential include: (1) a description of the items; (2) whether and why such items are 

customarily treated as confidential within the industry; (3) whether the information is generally 

known by or available from other sources; (4) whether the information has previously been made 

available to others without obligation concerning its confidentiality; (5) an explanation of the 

competitive injury to the submitting person which would result from public disclosure; (6) when 

such information might lose its confidential character due to the passage of time; and (7) why 

disclosure of the information would be contrary to the public interest. 

E. Issues on Which DOE Seeks Comment 

DOE is particularly interested in receiving comments and views of interested parties 

concerning the following issues: 

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EE-2006-STD-0129 COMMENT 56.1
 

1. The max-tech efficiency levels identified for the analyses, including whether the efficiency 

levels identified by DOE can be achieved using the technologies screened-in during the 

screening analysis (see section IV.B), and whether higher efficiencies are achievable using 

technologies that were screened-in during the screening analysis. 

2.	 The potential burdens to manufacturers of hearth-type DHE as a result of the testing, 

certification, reporting, and enforcement provisions. 

3.	 EPCA’s efficiency descriptor requirements in any potential test procedure revisions for 

electric pool heaters. 

4.	 DOE’s proposed definition for vented hearth heaters. 

5.	 DOE’s product classes for water heaters. In particular, DOE is seeking comment about the 

need for a separate product class for low-boy water heaters. 

6.	 DOE’s approach for analyzing ultra-low NOX gas-fired storage water heaters and the need for 

a separate product class. 

7.	 DOE’s approach to developing the energy efficiency equations, the appropriate slope of 

energy efficiency equations at each efficiency level analyzed, and the appropriate storage 

volumes for changing the slope of the line. DOE is also interested in any alternatives to the 

energy efficiency equations that DOE should consider for the final rule. 

8.	 The need for a separate product class for heat pump water heaters. Specifically, DOE is 

interested in receiving comments on whether a heat pump water heater can be used as a direct 

replacement for an electric resistance water heater, and the types and frequency of instances a 

heat pump water heater cannot be used as a direct replacement for an electric resistance water 

heater. 

9.	 DOE’s proposed product classes for the four existing types of DHE. 

10. DOE’s proposed product class divisions for gas hearth DHE. 

467
 

EE-2006-STD-0129 COMMENT 56.1
11. The manufacturability of heat pump water heaters and the capability of manufacturers to 

ramp up production of heat pump water heaters. Specifically, DOE is seeking comment on 

how long it would take and the magnitude of the costs for manufacturers to convert all 

product lines to heat pump water heaters if it were required by an amended energy 

conservation standard. In addition, DOE is seeking comment about the length of time 

required to retrain installers and servicers of water heaters for the installation and servicing of 

heat pump water heaters. 

12. DOE’s estimated manufacturer production costs for storage water heaters at storage volumes 

outside of the representative volume. 

13. DOE’s analysis of installation costs for water heaters. DOE is particularly interested in 

comments on its analysis of installation costs for heat pump water heaters. 

14. DOE’s analysis of repair and maintenance costs for heat pump water heaters. 

15. DOE’s approach for analyzing fuel switching that may result from the proposed standards on 

water heaters and the other heating products. In particular, DOE requests comments on its 

general approach, which does not involve price elasticities; its analysis of switching to gasfired storage water heaters in the case of a standard that effectively requires an electric heat 

pump water heater; its conclusion that the proposed standards would not induce switching 

from a gas storage water heater to an electric storage water heater; and its conclusion that the 

proposed standards would not induce switching for gas-fired instantaneous water heaters, 

DHE, and pool heaters. 

16. DOE’s consideration of TSL 6 in the final rule for residential water heaters and the 

associated issues DOE has identified surrounding heat pump water heaters. 

468
 

EE-2006-STD-0129 COMMENT 56.1
17. DOE’s consideration of TSL 5 in the final rule for residential water heaters and the 

associated issues DOE has identified surrounding standards that effectively require different 

technologies for different subsets of products. 

18. The appropriateness of TSL 4 for residential pool heaters in light of the negative life cycle 

costs for a majority of consumers. In addition, DOE’s consideration of other TSLs, including 

TSL 3, as an alternative for the final standard level. 

19. The impacts of the proposed amended energy conservation standards on small manufacturers 

of residential water heaters. 

20. The impacts of the proposed amended energy conservation standards on small manufacturers 

of gas-fired residential pool heaters. 

21. The impacts of the proposed amended energy conservation standards on small manufacturers 

of traditional DHE. DOE is interested in specific information regarding the potential for 

small manufacturers of traditional DHE to discontinue particular product lines as a result of 

the proposed standard, as well as the potential economic effect discontinuing those particular 

product lines would have on small manufacturers of traditional DHE. 

22. Alternatives to the proposed amended energy conservation standards for traditional DHE. 

Specifically, DOE is interested in information regarding alternatives that could provide 

significant cost-savings for small manufacturers while meeting DOE’s energy conservation 

goals. 

23. DOE’s characterization of typical small and large gas hearth DHE manufacturers. 

24. The impacts of the proposed amended energy conservation standards on small manufacturers 

of gas hearth DHE. 

469
 

EE-2006-STD-0129 COMMENT 56.1
EE-2006-STD-0129 COMMENT 56.1
For the reasons set forth in the preamble, DOE proposes to amend chapter II, subchapter D, of 

title 10 of the Code of Federal Regulations, as set forth below: 

PART 430 - ENERGY CONSERVATION PROGRAM FOR CONSUMER 

PRODUCTS 

1. The authority for Part 430 continues to read as follows: 

Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note. 

2. In §430.2, add the definition “Vented hearth heater,” in alphabetical order to read as follows: 

§430.2 Definitions. 

* * * * * 

Direct heating equipment means vented home heating equipment and unvented home heating
 

equipment. 

* * * * * 

Vented hearth heater means a vented, freestanding, recessed, zero clearance fireplace heater, a 

gas fireplace insert or a gas-stove, which simulates a solid fuel fireplace and is designed to
 

furnish warm air, without ducts to the space in which it is installed. 

* * * * * 

3. In §430.32 revised paragraphs (d), (i), (k) to read as follows: 

§430.32 Energy and water conservation standards and their effective dates. 

* * * * * 

(d) Water heaters. 

471
 

EE-2006-STD-0129 COMMENT 56.1
The energy factor of water heaters shall not be less than the following for products 

manufactured on or after the indicated dates. 

Product Class Energy factor as 

of January 20, 

2004 

Energy Factor as of [INSERT DATE 5 YEARS 

AFTER DATE OF PUBLICATION OF THE 

FINAL RULE] 

Gas-fired Water 

Heater 

0.67 – (0.0019 x 

Rated Storage 

Volume in 

gallons) 

For tanks with Rated Storage Volume at or below 60 

gallons: 0.675 – (0.0012 x Rated Storage Volume in 

gallons); 

For tanks with Rated Storage Volume above 60 

gallons: 0.717 – (0.0019 x Rated Storage Volume in 

gallons) 

Oil-fired Water 

Heater 

0.59 – (0.0019 x 

Rated Storage 

Volume in 

gallons) 

0.68 – (0.0019 x Rated Storage Volume in gallons) 

Electric Water 

Heater 

0.97 – (0.00132 

x Rated Storage 

Volume in 

gallons) 

For tanks with Rated Storage Volume at or below 80 

gallons: 0.96 – (0.0003 x Rated Storage Volume in 

gallons); 

For tanks with Rated Storage Volume above 80 

gallons: 1.088 – (0.0019 x Rated Storage Volume in 

gallons) 

Tabletop Water 

Heater 

0.93 – (0.00132 

x Rated Storage 

Volume in 

gallons) 

0.93 – (0.00132 x Rated Storage Volume in gallons) 

Instantaneous 

Gas-fired Water 

Heater. 

0.62 – (0.0019 x 

Rated Storage 

Volume in 

gallons) 

0.82 – (0.0019 x Rated Storage Volume in gallons) 

Instantaneous 

Electric Water 

Heater 

0.93 – (0.00132 

x Rated Storage 

Volume in 

gallons) 

0.93 – (0.00132 x Rated Storage Volume in gallons) 

NOTE: The Rated Storage Volume equals the water storage capacity of a water heater, in 

gallons, as specified by the manufacturer. 

* * * * * 

(i) Direct heating equipment. 

(1) Direct heating equipment manufactured on or after January 1, 1990 and before [INSERT 

DATE 3 YEARS AFTER DATE OF PUBLICATION OF THE FINAL RULE], shall have 

an annual fuel utilization efficiency no less than: 

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EE-2006-STD-0129 COMMENT 56.1
Product Class Annual fuel utilization efficiency, Jan. 1, 1990 

(percent) 

1. Gas wall fan type up to 42,000 Btu/h 73 

2. Gas wall fan type over 42,000 Btu/h 74 

3. Gas wall gravity type up to 10,000 Btu/h 59 

4. Gas wall gravity type over 10,000 Btu/h up 

to 12, 000 Btu/h 

60 

5. Gas wall gravity type over 12,000 Btu/h up 

to 15,000 Btu/h 

61 

6. Gas wall gravity type over 15,000 Btu/h up 

to 19,000 Btu/h 

62 

7. Gas wall gravity type over 19,000 Btu/h and 

up to 27,000 Btu/h 

63 

8. Gas wall gravity type over 27,000 Btu/h and 

up to 46,000 Btu/h 

64 

9. Gas wall gravity type over 46,000 Btu/h 65 

10. Gas floor up to 37,000 Btu/h 56 

11. Gas floor over 37,000 Btu/h 57 

12. Gas room up to 18,000 Btu/h 57 

13. Gas room over 18,000 Btu/h up to 20,000 

Btu/h 

58 

14. Gas room over 20,000 Btu/h up to 27,000 

Btu/h 

63 

15. Gas room over 27,000 Btu/h up to 46,000 

Btu/h 

64 

16. Gas room over 46,000 Btu/h 65 

(2) Direct heating equipment manufactured on or after [INSERT DATE 3 YEARS AFTER 

DATE OF PUBLICATION OF THE FINAL RULE], shall have an annual fuel utilization 

efficiency no less than: 

Product Class Annual fuel utilization efficiency, [INSERT 

DATE 3 YEARS AFTER DATE OF 

PUBLICATION OF THE FINAL RULE] 

(percent) 

1. Gas wall fan type up to 42,000 Btu/h 76 

2. Gas wall fan type over 42,000 Btu/h 77 

3. Gas wall gravity type up to 27,000 Btu/h 70 

4. Gas wall gravity type over 27,000 Btu/h up 

to 46,000 Btu/h 

71 

5. Gas wall gravity type over 46,000 Btu/h 72 

6. Gas floor up to 37,000 Btu/h 57 

7. Gas floor over 37,000 Btu/h 58 

8. Gas room up to 20,000 Btu/h 62 

9. Gas room over 20,000 Btu/h up to 27,000 

Btu/h 

67 

10. Gas room over 27,000 Btu/h up to 46,000 

Btu/h 

68 

473
 

EE-2006-STD-0129 COMMENT 56.1
11. Gas room over 46,000 Btu/h 69 

12. Gas hearth up to 20,000 Btu/h 61 

13. Gas hearth over 20,000 Btu/h and up to 

27,000 Btu/h 

66 

14. Gas hearth over 27,000 Btu/h and up to 

46,000 Btu/h 

67 

15. Gas hearth over 46,000 Btu/h 68 

* * * * * 

(k) Pool heaters. (1) Gas-fired pool heaters manufactured on or after January 1, 1990 and before 

[INSERT DATE 3 YEARS AFTER DATE OF PUBLICATION OF THE FINAL RULE], 

shall have a thermal efficiency not less than 78%. 

(2) Gas-fired pool heaters manufactured on or after [INSERT DATE 3 YEARS AFTER DATE 

OF PUBLCIATION OF THE FINAL RULE], shall have a thermal efficiency not less than 

84%. 

* * * * * 

474
 

EE-2006-STD-0129 COMMENT 56.1